Credit Management Tips

The list is endless and some are more important than others. We would argue that the first two examples above are some of the most important. Good credit management is the discipline that directly impacts your ability to get paid on time consistently, so that your cash is in your bank account as quickly as possible.

Here’s a rundown of some key ongoing business disciplines that are important in good credit management.

80/20 rule

The 80/20 rule states that a small number of customers typically account for the majority of your revenue. This 20% concentration deserve the most of your attention. Know the people in their finance teams, visit them, understand their payment cycles, and make sure you’re seen as a priority supplier rather than just another creditor. The remaining 80% are still important. But good procedures will be your bedrock for success, such as accurate and timely invoicing, credit vetting, clear and agreed Terms and Conditions.

Negotiate Terms of Trade at the point of sale

Raising the subject of Terms of Trade at the point of sale is the best time to do it. It goes back to that maxim that a sale until it is paid for. Everyone ‘high fives’ a new sale, but no one will applaud a bad debt. Avoiding it means you’re negotiating payment terms retrospectively, when money is already owed and the power has shifted accordingly. Reinforce your terms at every opportunity. For example, place them on order acknowledgements, account application forms, invoices, statements.

Open new accounts with discipline

The moment you open a new account is your best opportunity to establish good payment habits. Collect the full information, such as company registration number, payment address, the name of the person who authorises payment, and written acceptance of your terms. Run a credit check. Set a limit that reflects what you know about the customer’s position – not what you hope it might be.

Send the payment contact a letter confirming the credit limit and terms. It introduces you to the right person, sets expectations clearly, and creates a record you can refer to later.

Invoice quickly and accurately

A late or inaccurate invoice gives the customer a reason not to pay. Every day between completing work and raising an invoice is a day added to your collection cycle unnecessarily. Issue invoices the same day work is delivered or goods are dispatched. Check them before they go out. One error can trigger a dispute that delays payment by weeks.

Act quickly and confidently

Always analyse your aged debtor reports. Look for patterns of increasing debtor days. If you start experiencing problems in collecting your cash, be swift and confident in your actions:

• Know how each customer responds best to different chasing techniques. Email, phone, post, or simply going and see them in person. Visiting your major accounts to resolve problems and build relationships is a good way to keep the money flowing.
• Phone major accounts in advance of due dates to ensure payments are in process. The phone is still one of the most effective collection tools at your disposal.
• Send letters/emails to any overdue accounts too small to telephone. Doing this twice should be enough before you escalate the collection process.
• Final demands need to be final. Don’t allow anyone to ‘call your bluff’.
• Don’t hesitate to put a customer on ‘Stop’ if they do not respond to your requests.