The Deadly Sins of Credit Management

There are two different ways of approaching credit management – the right way, and not the right way. The second of these approaches can damage your business irreparably, and so it is important to recognise just what the deadly sins of credit management are and how to avoid them.

  • Not knowing just who you are dealing with

Not knowing who the other person or company is can cause all manner of problems later on down the line. If the information that you have on the debtor is not complete, you could be chasing that debt indefinitely. This is especially true if you do not, for whatever reason, have the correct name on file. 

Failure to determine the correct details is not going to get you very far in court if you apply to have a CCJ filed against the debtor. A business credit report is going to help enormously in getting you the details that you need.

  • Inadequate or absent terms and conditions

There is an alarming amount of companies out there that have inadequate terms and conditions when it comes to invoices, lines of credit and payments. Even worse, some companies don’t have them at all. If you fall into either of these categories, it is probably not too late.

It is tempting to overlook details like this when things are going well, but making these changes now can save you a huge headache later.

  • Inadequate paperwork and administration

Getting paid on time, ever time is the ideal situation for any business to be in but let’s be perfectly honest, this is not likely to happen. This can be because you neglect to send invoices or you don’t keep up with things because of poor paperwork. There is also the risk that you may not be paid at all, let alone late.

Errors on the part of the company, that can mean you not getting paid on time, can include:

  • Entering customer details incorrectly on accounting records
  • Order numbers missing from invoices
  • No proof of delivery
  • Missing or unclear agreements on credit terms

Attention to detail is important, and a customer’s details may have changed since the last payment. It is always worth checking, just in case.

  • Believing the customer will pay because they have in the past

It cannot be assumed that a customer or partner is going to pay this time just because they paid the last time. ‘payment reminder’ are not dirty words, although it can feel awkward if the customer is particularly long-standing. It pays to remind yourself that this is business, not personal.

Building trust is extremely important in business, so do be polite in your communication but don’t be a pushover either. Don’t allow payment reminders to go ignored and you shouldn’t ignore red flags when you see them.

  • Are you irreplaceable?

If a customer needs to do business with you, rather another business, then they may not be inclined to let you know of their financial difficulties. Indeed, it may be that the first you know about it is the insolvency notice lands on your doormat.

Don’t allow things to get this far. Your customer may well be late paying others too to keep going in the hopes they can solve their financial woes. The Register of Outstanding Invoices can be an invaluable tool in discovering if a customer is defaulting elsewhere too – discovering this early can save you a lot of money.

  • Don’t take unnecessary risks

“a sale is not a sale until it is paid for” – truer words have never been spoken. Many businesses have to take calculated risks, that’s just the nature of doing business, but the keyword here is “calculated”. Whatever your business happens to be, you should base and chances you take on the potential for profit – there is little point in making a lot of sales if they don’t turn an actual profit.

  • Get to know your customer, properly.

This means before the sale, in the discussion and after the fact. Customer relationship management, right from the beginning, can help you to reduce potential write-offs. Businesses that survive the tough times, as well as thrive in the good ones, have solid processes in place.

A quick prospect check on a potential customer is going to save a lot of time. This means making sure that the potential customer is an actual fit for your company. If they don’t meet your requirements then there is little point in pursuing business with them.

If they do look ideal, however, then the sales team is going to be in a much better place to close a deal and open a properly formatted credit account application.

Business credit checks can help navigate most of the above and don’t forget to keep your records up to date.

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