| Credit Control policies aim to serve two purposes. | | | | court summons without needing to instruct a solicitor - |
| Firstly, to increase sales revenue by extending credit to | | | | if you learn how and when to use these two very |
| customers who are deemed a good credit risk. | | | | important devices then it can provide a cost effective |
| Secondly, to minimize risk of loss from bad debts by | | | | way of collecting debts that are small |
| restricting or denying credit to customers who are not | | | | 5 - Set your terms on outset |
| good credit risks. Effectiveness of credit control lies in | | | | As part of the sales process, tell customers about |
| procedures employed for judging a prospect's | | | | your credit control and link it into the sales process. For |
| creditworthiness, rather than in procedures used in | | | | example, explain at the outset that you keep your |
| extracting the owed money. | | | | prices low and therefore you do not want to waste |
| 1 - Be firm but fair | | | | time chasing customers for debts, so will move to legal |
| It is the first rule of debt collection that the more | | | | action very quickly. |
| aggressive you are the more likely you are to get paid. | | | | 6 - Don't be afraid to part company with customers |
| Debtors who are in trouble generally pay those who | | | | ask for money up front |
| can cause the most inconvenience e.g. key suppliers | | | | When assessing the profitability of customers one of |
| or who yield the biggest axe. Others have a habit of | | | | the costs that is often not taken into account is the risk |
| drifting down the pecking order. If you want to stay | | | | posed by slow payers. Dealing with unprofitable |
| high in the order of payment make sure either a | | | | customers is also often very de-motivating and |
| customer needs you or you mean business when it | | | | replacing a poor payer with a good customer can |
| comes to getting paid. | | | | improve the morale of your team. It is best to give the |
| 2 - Give debtors an incentive to pay early | | | | poor payer a warning first - following the principle of |
| We were doing consultancy for a firm once (they | | | | being firm but fair. If you get into a position where you |
| were actually a firm of accountants!) who had a | | | | are afraid to upset customers then you also need to |
| problem with collecting debts as clients did not | | | | have a look at your marketing and sales process |
| perceive them as key to the operation. We got the | | | | rather than debt collection. |
| firm to write to all clients and say "your fees were x, | | | | 7 - Make maximum use of standing orders, direct |
| they are now x plus 5%, but if you pay within 30 days | | | | debits, credit cards and online payment |
| you only pay x - i.e. a 5% discount. The bank overdraft | | | | The easier you make it for a customer to pay the |
| came down by £300,000 almost overnight - certainly | | | | easier it is to collect your debts. We have seen some |
| within 30 days. They also saved an enormous amount | | | | very successful results for companies who put |
| of time chasing debtors for payment. Their biggest | | | | customers on direct debit in exchange for a reduction |
| problem was paying back the old ladies who overpaid. | | | | in the price. Credit cards are useful for clients in |
| Similarly, charge interest on debts paid late. | | | | difficulty and standing orders where you are an |
| 3 - Delegate the process | | | | overhead cost (like accountancy compliance services!). |
| Debt collection can be an extremely time consuming | | | | Online payment prevents the excuse the cheque is in |
| process. If it is delegated it is usually done better by the | | | | the post. |
| junior member of staff as they allocate the right | | | | 8 - Don't give credit you can't afford to loose |
| amount of time to the task. Also owner managers | | | | Insolvency practitioners often hear the excuse - I went |
| take rejection very personally - which is not always | | | | bust because of a bad debt. That is incorrect - you |
| good. | | | | went bust because you gave credit to someone when |
| Remember delegation does not mean abdication. The | | | | you could not afford a bad debt. |
| elements of good delegation are (i) show the person | | | | 9 - Set credit limits for everyone |
| how to do it (ii) let them do it while you watch them (iii) | | | | This is linked to the point above. Even if the Queen |
| let them do it with less watching e.g. occasional sample | | | | had wanted her tax return done - she would have had |
| checks (iv) praise the staff member when they do | | | | a credit limit. During the 1990s recession a client said - |
| well (v) incentivise good performance. | | | | why should I give them a credit limit when my client is |
| A series of standard letters are available from Smith | | | | PLC. He went bust when the PLC took five months to |
| Kennedy Limited to help the credit control process. | | | | pay him following a dispute. |
| 4 - Know how to take legal action without reference | | | | This help sheet is written by Alan Kennedy of Smith |
| to solicitors | | | | Kennedy Limited. |
| It is quite easy to issue statutory demands and county | | | | |