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HOW GOOD IS YOUR CREDIT CONTROL?
Now that the last Bank Holiday before December has passed, Danny Basden
suggests this is the time to get your credit control in good order.
As we approach the most
difficult part of the year for
cash flow, what we do now
will determine the financial
affairs of many companies
over the December holiday
shutdown.
Companies in this industry
have many diverse methods
of credit control, from using a
family member, right through
to a bespoke, well-managed
highly-organized finance
department. The larger
company finance departments
will have an accountant-based
head to oversee the different
areas of responsibility,
which generally comprise of
purchase ledger, sales ledger
and credit control.
‘The larger company
finance departments
will have an
accountant-based
head to oversee the
different areas of
responsibility, which
generally comprise
of purchase ledger,
sales ledger and
credit control’
This area of every company
should be given some priority
if we are to maximize the
revenue streams during this
notoriously difficult period.
The general consensus in
the UK is that a number of
businesses, particularly those
who have the traditional
December closure, will have
extreme financial pressures
exerted upon them during this
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period. The extreme part being
that in some sectors, up to 10
percent of their customers
could experience serious
financial problems - and may
even fail to re-emerge after the
holiday shutdown.
STRINGENT CHECKS
MUST BE MADE
The industry has experienced
this annually during the period
of austerity. Each individual
company’s ability to make
provision to guard against
becoming a victim of this
situation will be determined
by the quality of their credit
control procedures. Stringent
checks should be made on
any company asking for credit
facilities. Once the references
are satisfactory only then
should terms be offered. There
are still a lot of companies who
only deal in cash. This can also
present its own problems.
If your company gives credit
terms, it is reasonable to
expect that the recipient of
these terms will honour their
obligation and pay on the due
date - if only that were true.
It is my experience that if
net monthly accounts are not
paid within the first three or
four days, you should contact
them and begin the reminder
procedure.
I know of companies who
pay one or two days before
the month end due date.
These are, however, in a very
small minority. In smaller
companies, it is imperative
that now is the time to put
your credit control into
good order, condition your
customers, make them aware
of the procedure. When you
have to initiate putting their
account on stop, be firm and
ensure that your decision is
not superseded by another
member of staff, however
senior they may be.
At all levels of business it is
easy to get caught up in the
cash or cheque on delivery
trap. But it is becoming more
common to hear those words
“there is no signed cheque,
can we post it” If the agreed
.
payment is not available, don’t
deliver.
Because of the nature of
our industry, there are lots
of different suppliers of
the various products we all
need to fulfil our customer
requirements. Try to identify
the customer who does not
buy to a regular pattern. These
are always the most at risk
accounts, and their buying
patterns should alert you. This
allows them time. They do not
pay the companies that are not
on top of their credit control.
If your supplier does not chase
payment then why pay them?
For customers who require
special products, they should
be made to pay a deposit at
the time of placing the order;
this is their commitment to the
purchase of the goods.
THE FINAL WORD
A good credit control
department will have sound
procedures in place and the
whole department will be
aware of those procedures. On
credit matters, they must have
the final decision and instigate
the various levels of debt
recovery.
If they are able to act without
any external influence,
they will ensure the correct
procedures are followed, all
customers will be treated the
same and the results should
bear this out.
If your company is not large
enough to warrant a full blown
credit control department,
then follow the same rules but
just scale it down to fit your
particular model.
THE RISK OF OVERTRADING
There are other modern
options available at little or
low cost and one of these
is to outsource [