Golden Rules of Credit Control

We see a lot of businesses who complain that their customers don’t pay on time. Whilst there are times and occasions when things go wrong and we don’t get paid more often than not there is much that we can do to either reduce the risk, get more warning or simply get the cash in faster.

These 11 rules are not a credit control process but something much more valuable, they are a set of underlying principles that your credit control should be based on.

If you have problems with getting your cash in then start by looking at your own systems and the principles that underpin them.

Rule One - Credit control starts before you make the sale Do you really know who the customer is?

o Get full details o Nameo Legal status (company, sole trader etc)o Check who owns ito Who is your contract with?o Who is responsible for paying you and who is signing it off?o Record all this

Agree terms in writingo When will it be delivered?o When will it be invoiced?o When will it be paid for?o How will it be paid for?o Record all this

Start with no credito We make an automatic assumption that we have to give 30 days –

why? o If we are starting with that mental picture then 45 or 60 days does not

seem so much of a stretch!o If we start on a pro-forma basis we have time to get a trading

relationship going as well as a history

Outlaw 30 days from month end!o That is really up to 60 dayso Work on terms from the date of invoice

Rule two – Know your customer’s systems Where will the invoice have to be sent? What information do they want on the invoice and with the invoice? Provide

it! What person should the invoice be sent to? Send it to them! Exactly what process does your invoice go through to get paid – know the

system and stick to it If they want you to jump through hoops then do it!

Rule three - Raise it on time There is no excuse for late invoices, raise them the same day as the delivery

at the latest the next day Do not invoice at the end of the month – you could have given them 30 days

credit before they even see the invoice Post it out as well! Clear up queries quickly and efficiently

Rule four - Follow the invoice with a phone call What is wrong with a friendly customer service call a few days later?

‘Hi it’s Sara from XYZ Ltd here just calling to check that the goods we sent/service we gave you were received OK? Was everything OK with them? Fantastic, have you received our invoice? Was all OK with that? –if the answer is yes, then you can mention that they payment terms are 30 days and therefore it is due on…

(don’t forget to up sell at this point – you have a satisfied customer here ‘Is there anything else we can do for you’)

Write down what was said and by who If there was a problem with the goods, service or invoice then they will tell

you. You now have the opportunity to put that right now. Firstly, that’s good customer service and secondly, you have cleared the query well before the invoice is due for payment.

Rule five - Call again just before the invoice is due for payment‘Hi it’s Bob from XYZ Ltd Sara spoke to ……. On …… regarding the ……. And he said everything was OK. Just calling to check on the payment - the invoice is due for payment on ….. when can we expect to receive your payment?

The key here is to get an answer, to get a commitment – even if that commitment is to call you back….

Write down the commitment Hold them to it

Rule six – Record, record, record Write it all down. Have a simple card system for each customer write down

what is said by who on what date – customers are always surprised when you can quote what they said last time you called, they won’t remember and neither would you without the notes.

You can do it electronically if you want…just do it It is invaluable as a aide memoir and also as evidence if things should get

nasty

Rule seven – Get a commitment If you make a call don’t accept ‘I’ll have look for you’, ‘I’ll sort something

out’ or other wishy washy statements Use open questions – ‘when will you call me back? by Friday?’ Get a commitment from them to do something by a certain time and hold them

to it

Rule eight – Don’t threaten something you are not prepared to do There is little point and people will get wise If you threaten court action then do it when you say you will. 7 days should

mean 7 days, not 3 weeks! If you have really followed all the rules and got to the point of court action

then you are likely to have lost the customer anyway… and even if you have not do you really want them as a customer if they are this much trouble?

Rule nine – Don’t give them any excuse not to pay This is the underlying basis of all the rules

Rule ten – Credit control is about people, processes and relationships Get the right person doing the credit control - It should not be the MD Divorce the credit control from the commercial relationships Give the credit controller a higher authority to call on Train the person doing the credit control – this is a vital job that requires skills.

Investment in that person will pay for itself over and over again. Get a system/process in place and run it well

Rule eleven – Give credit control the priority it deserves Credit control is a vital job give it the right priority Credit control is a job for everyday - not here and there and when I get time, if

I get time We see it time and time again - an MD calling the customers when he gets

chance in amongst 300 other things he needs to be doing. No process, no Training, half a job or no job at all – then he will be the first to scream ‘I have a cash flow problem’

Commit the resource that is required If resource is an issue then outsource it

Richard Ashmore BA, ACAAltus Business Consulting01384 36114107985 975308Richard@altusaccountingservices.co.uk