To keep a healthy cashflow, every business, of whatever size, needs a really efficient credit control system. Unless its procedures are followed faithfully, it might not be long before a financial crisis occurs. So what are good credit control procedures?
New Customer Credit Checks
These are important. You can’t just trust everyone who wants something from you on credit. The safest way is to check formally through a credit rating agency or by asking the customer’s bank to give them a reference.
Sometimes you can find out informally via networking with their other suppliers and people who know them, whether they normally pay up on time, or if they are known to have financial difficulties. The grapevine can be helpful but you will need to be sure that what you hear is not just malicious gossip. Your outsourced bookkeepers are well placed to pick up on news like this via their networks, but they cannot, of course, pass on confidential information about their other clients.
When you are confident enough to allow a customer credit, you will collect the information you need: the name and main address of the customer and the address for invoices, if different; the name of the person who should receive the invoices and a contact name and number for following up. This data must always be accessible, whether you store it electronically or in paper form.
You will also make decisions about the credit terms you will allow, and whether this customer should have your standard terms or be treated differently. It can be a good idea to make your terms shorter during the first few months of a relationship with a new customer. Whatever you decide must be communicated to your contacts and you need to be sure that the right people know and understand your terms for doing business with them. This should include whether and when you intend to charge late payment interest.
Send out your invoices promptly, with terms and late payment penalties clearly stated. Then put in place your reminder procedures, keeping notes and records of all follow up and chasing activities. You may like to have your bookkeepers undertake these, or to delegate them to a member of staff, or in some or all cases, you may prefer to do them yourself. But you need to be sure they take place and that you are informed of any actual or potential problems.
It’s worth asking your outsourced bookkeepers for their opinions on your credit control system, and whether they think it can be improved. Their experience with many different companies will make them good judges of the effectiveness of your procedures.