10 Common Mistakes Made in Commercial Credit Management
Throughout my years in commercial credit management, I have identified several mistakes that companies make within their order to cash process; mistakes that are often very small and easily fixed; make enough of them, however, and you could find your cash flow isn’t flowing the way you would like it to.
Mistakes in Commercial Credit Management:
- no terms and conditions of sale
It is amazing how many times I have come across a company that don’t include their terms of sale with their quotes. Whist this affects payment terms, your terms should also protect you from other issues such as consequential loss claims and set out consequences of payment not being received on time such as a suspension of your customer’s account. If you do not have the right to suspend for non-payment, under common law, you may be found in breach of contract which may leave you open to claims of damages from your customer.
I recommend including your terms in the body your quote template, to ensure someone doesn’t forget to attach a separate document, and very importantly refer to them in the body of the quote. E.g. where you have your cost, say something such as ‘acceptance of this quote confirms your acceptance of the companies’ terms and conditions as detailed in the last 3 pages of this document”
- Not having adequate acceptance
If you don’t have adequate acceptance, you don’t have suitable evidence should your business relationship with your customer go pear shaped. Acceptance of Terms and Conditions can potentially make or break a County Court Claim so it is vital that your business ensures you receive this, either by verbal, written or conduct. See our guide on Acceptance of Terms and Conditions in a lot of cases, court action is not needed. If you can set out your claim in full and show your customer they have accepted your terms and conditions, they are more likely to reach an agreement on payment with you than allow a court claim to be issued.
- Being too focused on sales
Credit control has often been called the anti-sales team; however, the reality is that sales and credit control are in fact the main customer facing roles within the business and therefore should both be given equal standing. All is well and good if you bring in a sale, but if you are unable to get paid for it the sale is worthless. Incorporating credit management into your sales strategy is vital for the smooth running of the business.
From my time in corporate, a large part of my role was building relationships with the sales team, being included and presenting at sales meetings and doing joint customer visits with the sales team to larger customers, especially if there were constant disputes on the customer’s account,. We would work together to try to improve process and procedure to reduce disputes and increase customer satisfaction.
- Not getting signed delivery confirmation
Signed delivery should be mandatory in all circumstances; if you have to resort to legal action to get an outstanding debt paid, the burden of proof is on you (the Claimant) to prove goods or services have been delivered. If your company delivers services, it may be useful to have customers sign off at various stages, where you see appropriate; stating that they are happy with the service received.
Nowadays there are many electronic forms of being able to prove delivery of goods or service, I recommend those systems are joined up with Accounts Receivable so credit controllers can easily access & provide proof to customers quickly to reduce disputes.
- Incorrect information on an invoice
By having incorrect information such as, pricing, legal entity, quantity, or if you have the incorrect email or postal address to send the invoice to, this will highly likely result in a disputed invoice and you won’t be paid until the issue is resolved. Check and double check invoices before they go out to customers, this could save you a lot of time and money in the long run.
Also consider having a detailed description of the services/ goods provided on your invoices. I often see very vague an general descriptions that encourage the invoices to be disputed until the detailed specific work. Goods are provided.
- Waiting until an invoice is overdue to chase
Chasing payment should begin before the payment is due; I would recommend a phone call is made to your customer before the invoice falls due, perhaps a week or less depending on what is appropriate to your business. I wouldn’t call this a chaser phone call; rather it should act as a customer service phone call, ensuring your customer is happy with your service or product. This enables you to resolve any disputes before the due date so that you are still paid on time. During the conversation you should also ensure they received their invoice, that the information is correct and therefore request a payment date.
By doing this early phone call you will not only add to your chances of being paid on time, but also add to the customer relationship by checking they are happy with the product or service you have provided.
This pre-due call isn’t practical for every customer, although I strongly suggest it for new customer’s as often the customer’s invoice instructions and procedure are not recorded accurately during the onboarding process. Also important for customers who often dispute invoices or if there is a larger than usual invoice on their account.
- Leaving all chasing until cash flow is tight
I’ve come across this one too many times, a company will put credit control duties to the back of their minds and focus on other areas of the business, that is until the realisation that cash flow is tight; subsequently there is a big dash to collect payments from customers all at once. Once money is in, the same happens again and credit control is forgotten.
A consistent collection strategy should be vital to any business, first to ensure that cash flow is constant, and the business is not put at risk, but secondly, so that customers don’t feel neglected or sense your desperation and think you might have severe cash flow issues and may not survive.
As I have said previously credit control is a customer facing roll and as a result there should be a strong business relationship between credit control staff and a customer, this is not possible if contact is only made once in a blue moon when the business needs to be paid.
- Not credit monitoring
You may have done everything right when you first began trading with a customer; get a credit risk report on them and they seem a good risk. However, a company may look like a wonderful prospect one day and have a CCJ against them the next. By monitoring a company’s credit rating you are able to keep track of anything that may happen in relation to their finances that could ultimately affect you getting paid.
Our support service can monitor your customers for a low monthly fee
- Only using email
I am a huge advocate of using telephone conversation in collection strategies, alongside emails. From my experience telephone conversation has a much higher success rate of, firstly getting hold of your customer, and secondly building a positive customer relationship in which a customer will endeavour to get payment to you on time.
Remember to always confirm conversations by email, it prevents misunderstanding as well as confirming agreements reached.
- Negotiating with a low offer
Always go into a negotiation with your ideal objective in mind for payment, build up the amount owed, for example, by use of interest and compensation to use as leverage to obtain a higher agreement; your customer will be doing the exact same thing. Your negotiations should hopefully bring you to a happy medium in which you are paid and your customer is able to make the payments to a schedule that won’t harm their own cash flow.
Have some questions about your Credit Management function?
Download our guide to Frequently Asked Questions in Credit Management
