10 steps to successful credit mgt

What are the 10 steps to successful credit management?

(i) Evaluate the credit status of new customers regularly.

New orders are good news - except when the customer cannot or will not pay. Must conduct regular checks on the company and its directors. Some of these checks include CREDIT WATCH check, CTOS check, ROC CHECK, ROB CHECK, BANKRUPTCY CHECK, RECEIVERSHIP & WINDING-UP CHECK, BANKERS REFERENCE, TRADE REFERENCE, LAND TITLE CHECK, etc.

(ii) Define and set credit limits with customers.

To allow unlimited credit is reckless . Some customers may take advantage by placing large orders and then taking their time to settle the accounts. Others may even go into liquidation, owing you money. Either way you will be left to pay your supplier’s bill and to finance the credit granted.

(iii) Define and set payment terms with customers.

The agreed payment terms should be stated clearly on the invoices. Whatever conditions you decide upon, do not fail to notify your customer.

(iv) Make sure invoices are prompt and accurate.

Ensure that all invoices are correctly addressed, and that they relate to goods delivered. Include relevant details, such as purchase order numbers, delivery order numbers, etc. as reference.

(v) Carefully record amounts owing.

The sales ledger is the primary source of credit information. It should carry records of all sales, credit notes issued and any adjustments to customers’ accounts. Invoices and payments should be entered as soon as they are issued or received so that the business transaction has accurate customer account history.

(vi) Follow-up on all outstanding accounts.

Verify that the customer received all outstanding invoices and ensure that they are passed to the appropriate department for approval and payment. Issue regular monthly statements on time. Do not forget or hesitate to send reminder letters to debtors who have overdue accounts. In doing so, be polite but firm.

(vii) Get on the phone.

Use the telephone to confirm:

- which invoices are being paid

- how much is being paid

- when and how payment is being made

- with whom you are dealing with. Check who is responsible for such payment and always ask to speak to the same person.

(viii) Confirm in writing all significant points agreed upon on the telephone.

(ix) Do not be afraid to consider legal proceedings if payment is not forthcoming.

Often a subtle threat is enough to make the customer pay. Three quarters of the number of slow payers will settle their dues when they receive a lawyer’s letter of demand.

(x) Match payments against specific invoices.

Check all payments you receive against the invoices you have quoted and issued, and maintain a separate record of unpaid invoices.

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