February Credit Management FAQ
Here are our top credit management FAQ for the month of February.
What credit risk assessment tools would you recommend when speaking to a prospective customer?
There are a number of credit risk assessment tools available to you, none of which will guarantee that you will be paid but that will reduce the risk that offering credit to a customer poses to your business. The type of credit risk assessment you carry out will depend on both your business and your prospective customer’s business (limited, sole trader, partnership etc.) For limited companies you may want to use credit risk reports, trade references (although be aware that your prospective customer may use ‘pet suppliers’ for these references), personal guarantees (although this can be tricky for a customer to get agreed). For unlimited companies or partnerships, they are personally liable anyway, so there is no need for guarantees; instead you can use, land registry searches, CCJ checks and check the insolvency register, disqualified Directors register or consumer credit check but have to comply with legislation before being able to get this.
In either case, I recommend having your customer fill out a credit application form in the first instance so that you have details and can therefore carry out these necessary checks – take a look at our credit risk assessment toolkit for example application forms and factsheets.
Why should I use late payment legislation in my terms and conditions?
Late payment legislation is a great way to add leverage when encouraging your customer to make payment. The legislation enables you to add interest (at 8% above bank of England reference rate), compensation and reasonable third party debt recovery fees. You can still use late payment legislation even if they aren’t in your terms and conditions; however, if you have other late payment interest stated in your terms, then you have to use your contractual rate. If you are unsure of what interest you should be charging for late payment, I would align your terms with the legislation.
For more information on how to use late payment legislation as leverage and how to apply it to outstanding invoices, please visit our collection strategy toolkit.
How do I go about improving cash flow using credit management?
Credit management should be an essential part of your business, there is no question as to whether or not it is needed, and without it your business’ cash flow would be extremely poor to non-existent. The question is how can you make your credit management as effective as possible, to improve cash flow and the overall running of a business.
Credit management covers the entire ‘order to cash’ process, so in order to identify areas that need improvement you should analyse each aspect of this, i.e. your terms and conditions, invoicing, production, delivery, collection strategies, and so on. A good way of knowing which area in particular needs improvement, is to analyse the dominant reason for disputes you may receive, for example, are you invoices going to the wrong place? Are your goods damaged on delivery? Once this is discovered, then you need to put the appropriate processes in place to resolve the issues.
Our consultancy service will provide your business with a full review of the order to cash process, offer recommendations for improvement and aid in the implementation of effective processes and procedures – find out more here.
Where are there refresher courses on credit control management?
Any job role will require refresher training at one time or another, and credit management is no different. Not only will you receive knowledge and advice from an expert in the field, but you can also chat to others doing the same job as you, and find out what works and doesn’t work for them. Over the years we have had credit controllers from all different backgrounds attend our courses, those new to the role, those who only do it as part of their job, those that have done it for many years and simply want to enhance their knowledge.
To book onto our improving collections course, running in Liverpool & Manchester, please click here.
