Ok, to most small businesses Credit Management means picking up the phone and chasing payments and that’s about it. Credit Management benefits your business, it is a simple fact, let me explain.
You run a business, you give credit, as well as a process for Credit Management it is also about reputation, and reputation doesn’t just sit with Sales or Customer Service, back office staff are also involved, and they have to make sure your invoice is at the top of the pile and not put to one side because payment has not been asked for.
Psychologically, if your Credit Control is seen to be chasing, asking questions and making sure that there are no disputes, word will spread that you are a good business to do business with, you are seen as reliable, you know when payments are coming in and when your customers do their payment runs.
I ran a £100m international company as a Group Credit Manager and I dealt with all sizes of company from those that are on the FTSE 100 to the Sole Trader. Everyone was treated the same when it came to collections, there was a process my controllers had to conform too and repetition of that process was key.
- Sending out a correct invoice with the right information
- Chasing that invoice to make sure they have received it
- Confirming there are no disputes
- Asking when is the invoice on the payment run
- Finally, confirming your invoice is on the next payment run and making sure you know when that is
This is what you need to ask each and every month, no excuse. If you do not have a handle on this you will have late payments and that will disrupt your cash flow and business.
If your credit control doesn’t chase regularly or pass you a cash flow forecast, how are you going to know what funds you have available for the next month, simply put, you don’t and you are then relying on guess work.
Accounts Payable are there to be chased, that is there job whether they like it or not. Your job is to make sure your business does not get affected by late payment – you don’t chase, then it is your fault if payment doesn’t come in.
My role as Group Credit Manager was to be available to every customer we dealt with, so if they had any questions or were disputing invoices they could ask for my involvement. If they had a cash flow issue they could ask for my help and they would get it. Reputation is everything both in the front and back office!
And before you say ringing the customer five times in a month is a lot, it isn’t! There is no point in sending out an invoice and not checking to see if they have actually got it, waiting till the end of the month and asking when payment will be released, only to be told they never received the invoice, is your fault. The same goes for disputes, you wait until the end of the month to chase payment only to be told it is disputed, pointless and a waste of time.
Some of you will say “I have been in business for over 10/20 years and not had a bad debt” I am not talking about bad debt, I’m talking about late payment and the majority of businesses that give credit will have suffered from late payment of commercial debts at some point.
What I am giving you is a way to reduce late payment.
Please also remember, you have the option of using the services of a debt recovery firm if you are not getting anywhere. Leaving debts for six months and expecting the customer to pay is a very poor decision in the majority of cases. Using a Debt Collection Agency to chase your debts doesn’t mean you have automatically lost the customer either, it depends on the process the Debt Collection Agency uses.
If you are looking to Outsource your Credit Control, let me know as we might be able to help. Another point to consider, using a Factoring Company may not be the best possible solution either, the costs and penalties can be high and if your business is not growing it could have a detrimental impact on your business and cash flow because the initial drawdown of cash is to support the growth of the business.
If you need any advice on finance, risk or credit management please feel free to give me a call.
I wish you all the very best
Graham, MD – Amril Ltd – Debt Recovery & Credit Management Specialists