|Good Credit Management Recommendations & Help About Collecting Unpaid Sales Invoices
The survival and success of all small, medium and large businesses is contingent upon receipt of payment from customers in respect of the product and services that the business provides and invoice for. It is not enough to get the sales order and provide the product if that sale can not be converted into cash. Cash is the lifeblood of every business and if debtors don’t pay overdue invoices without delay it can lead to calamity. Also see Trucking Invoice Factoring .
Numerous businesses are forced to provide credit terms to customers in order to remain very competitive and earn orders but this has a bad effect upon their cash flow. The damage caused by non payment (bad debts) can also be substantial, and the longer the period of credit that is offered the more opportunity there is for the customer’s circumstances to change, and therefore payment to become delayed – in many cases permanently. The secret to success is good credit management and credit control.
There are two components to effective credit management. The first is taking care in choosing the businesses that you will grant credit terms. The second is to build and employ an effective system of credit control strategies to collect unpaid invoices.
EXTENDING CREDIT TERMS
The following suggestions may be valuable when deciding whether to offer credit terms to a customer:.
Always confirm the exact trading name of the customer e.g. XYZ Limited; XYZ Plc; Mr X and Mr Y trading as XYZ; or Mr X trading as XYZ. Everyone these are exclusively different and knowing the exact trading name could be crucial in pursing a customer for payment through the legal system, should the need arise. The customer’s headed stationery, business cards or brochures can usually be helpful in determining the exact name, although bear in mind they could be inaccurate.
Give the minimum credit period that will be competitively advantageous. The longer the credit period the more chance there is that the customer’s financial situations may change.
Ensure that you have all the customer’s contact information: addresses, phone numbers, fax numbers, mobile numbers, email addresses etc. If possible, take the contact details of the prime movers. These could be extremely helpful if you need to contact the customer regarding unpaid invoices in the future.
Trade references may be useful but most businesses will have at least a couple of customers that will swear by them.
Credit info about customers can be bought from a variety of service providers. This can give you knowledge into the financial position of a business. You can also ask the customer to provide you with financial information about their business.
If a sizable amount of credit will be at stake think about checking out the customer to validate that the address given exists. A lot of details about a business can often be acquired just by visiting their offices and noticing what is going on e.g. are they hectic or is trade slack?
Ensure that the customer has noticed your terms of trade and has accepted the credit terms that you have agreed to offer.
Ensure that you learn about the process for submitting your invoices and getting payment from the customer e.g. who do you give them to, when is their check run etc
. CREDIT CONTROL COLLECTING UNPAID SALES INVOICES.
The following pointers and hints may be useful in making certain that you have an effective credit control process in place to collect unpaid sales invoices:.
Learn the customer’s payment process and procedures e.g. if you know the date that they undertake their monthly check run you can time your statement properly.
Look at “pre-dunning”, calling the customer before payment is due to confirm that your invoice has been received and that there are no causes for non payment.
Start a systematic approach to sending out statements, sending chasing letters (which gradually become firmer) and calling the customers.
Maintain copies of any correspondence and notes about telephone conversations. Confirm conversations in writing and preferably gain the customer’s written deal to any payment vows.
Try to call back and speak to the individuals concerned instead of leaving messages on answer machines.
Look at other techniques of contacting debtors e.g. text messages to mobile numbers or email and fax.
Be sure to remain calm but self-assertive on the telephone.
Look into promptly on any broken promises of payment.
Shorten the process by emailing or faxing documents rather than posting.
If vital consider ceasing further shipments once invoices are overdue.
The field of credit management and credit control is large and these are only a few key points to take into account. Lots of businesses have staff in-house that undertake this work with them but there are other options.
Factoring companies are experts in out-sourcing such services for their clients. They have specialist staff that can carry out the collection of your sales ledger for you and oftentimes this can be achieved with cost savings. The cost of invoice factoring should be examined against the cost of recruiting specialist staff or taking on the task yourself. See Trucking Invoice Factoring .
It is also feasible to receive bad debt protection (also called non recourse) which can minimize the need for you to bother with which customers are credit worthy. The receivable factoring company will research the customers standing for you and they will grant a credit limit for each and every customer.