I cannot stress this issue highly enough. Credit Management and all that relates to it is a vital part of growing your business and cash flow. If you look at it as just a back office cost you will end up having serious issues that will jeopardise your business.
You maybe brilliant at what you do, but get this core internal system wrong and you could fail. I have seen too many businesses fail because they didn’t take Credit Management seriously, please do not follow suit.
If you give credit then you need to act on the following:
Application process for Credit
- References (where from and how)
- b) Annual Accounts / Management Accounts (more up to date)
- c) Business premises (owned or rented)
- d) History of Business (Credit Report)
- e) Phoenix Company (Has the owner had more than one business?)
- f) At least two utility bills (Confirming billing address and legal entity)
AND don’t say you haven’t the time, make the time, you will lose money at some stage if you don’t.
When a customer comes to you requesting credit, this is the time you can ask as many questions as you want, as they want you. Do not be afraid to ask for the information, you will find it extremely difficult getting information once you have agreed to a credit proposal.
Be aware, that by asking questions and requesting data it puts you in a position of authority. They see you as competent, knowledgeably, and they will feel far more secure in dealing with you because they see you as a professional company that does know what it is doing.
Read them the riot act – Explain that you work on 30 day terms (not theirs) and your happy to offer a £4000 credit facility, tell them if they go over they have to pay the surplus.
Explain your internal process for payment, if payment requests are ignored you have a support debt recovery agency that will take on any matters and the account will be suspended.
Pre-warning letter will be sent if matters need to be escalated.
REMEMBER: Not all customers are good customers.
And no matter how much you want to do business, if your ‘Gut Feeling’ smells a rat, listen to it and be cautious. Make a note on your internal records that you are ok to deal with this customer but keep tight control on the credit.
Credit Management is not a cost!
Get a process in place, write up a procedure, so if a member of staff is ill, someone can read the procedure and follow it through with ease.