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Successful Credit Management During a Pandemic

Successful Credit Management During a Pandemic

As we adjust to the ‘New Normal’ one area that remains constant is that cash remains King!

Job losses are being announced daily, the rate of business insolvencies is increasing and will continue at an exponential rate. We all do our best to ride out the predictable economic impact of the global shut down of recent months and current increases in restrictions.

To make sure your business can come out of the other side of this unprecedented crisis, act quickly! Don’t wait until things get worse, NOW is the time to make changes to your Credit Management strategy.

Many people think Credit Management is chasing payment when invoices become overdue, however everything that happens before you receive payment effects your ability to get paid. Effective Credit Management covers the ‘Order to Cash’ process.  In this series of blogs, we will be looking at some of the elements that make up the O2C process to help you understand what areas of your business should be reviewed and strengthened and how to implement those improvements.

  1.  Assessing Credit risk

Review your customer base

With such a fast-changing economic landscape, it is advisable to reassess the credit risk of all your customers.  To review a credit risk, we suggest obtaining the following for each customer:

  • Credit Reference Agency report.
  • Payment history on each customer.
  • ‘Grapevine’ information- Sales often have a good idea of how your customer is performing such as upcoming contracts.  

Your analysis should include an understanding of your customer’s market. If their customer base consists mainly of higher risk businesses such as hospitality or entertainment, you may want to reduce credit limits. Conversely large supermarket chains have announced very high profits and may support an increase. 

Once you have gathered all relevant information, re-assess the credit worthiness of all your customers and adjust credit limits and payment terms accordingly.

Revise credit limits up or down and change the collection strategy to suit the new risk of that customer. It is useful to assign a ‘Customer Type’ based on their risk profile, then attach a different collection strategy to suit each Customer Type.

We advise subscribing to a Credit Reference Agency for their ongoing monitoring service. You will be alerted if there are any changes to your customers credit rating. This could be positive; they have just filed new accounts or negative, warning you a County Court Judgment has just been entered

If you have a large volume of customers, apply Pareto Analysis to your assessment. Make sure your review strategy is more in-depth with larger, key accounts whilst spending less time on smaller value accounts.

Key accounts

A good idea is to arrange a meeting (a virtual meeting in current conditions) with your customers jointly with sales. Discuss where they are now and how they see their short and medium future. Offer assistance, for example:

  • Invoicing and payment processes, would amending the way you invoice assist them in anyway? Can you offer payment by credit/debit card?
  • Short terms relief
    • Delay sanctions such as late payment penalties/ interest or suspending the account
  • Renegotiate payment terms (consider reducing as well as extending) 
  • Incentives for early payment
    • Retrospective rebate
    • Settlement discount

Don’t forget to negotiate to get something in return for any relief you are offering such as increase in credit limit for shorter payment terms.

Lower value accounts

Many Credit Reference Agents will provide a summary report showing specific risk indicators for a large volume of customers at a reasonable cost. This can cut considerable time in risk assessment for smaller value accounts.

When putting your customers on monitoring with a Credit Reference Agency, you may decide to only monitor higher value accounts. Just keep an eye on the aggregate risk of all accounts under this limit that are not being monitored, perhaps set a maximum collective value these accounts should reach when a review is triggered. 

Assist sales

Credit control can be viewed as the ‘anti-sales department’. But these are 2 vital functions of any business, sales and collecting payment for those sales, one cannot exist without the other.

While all businesses will struggle with the fall out of the pandemic it’s a good idea to take the opportunity to improve relationships with sales.

Get your sales team onside and help them wherever you can, in turn they will help you e.g. resolving disputes quickly. 

  • Regularly update sales of customer’s credit limits & available headroom so they can cross & upsell to those under credit limit capacity
  • Encourage sales to ask you to credit check prospects so they don’t spend a lot of time chasing down a sale to only find out they can only trade on a pro forma basis.
  • Ask to attend sales meetings and request a slot to share credit management KPI’s. Involve sales on how the KPI’s affects them.

What’s next?

Watch out for our next blog, “Collection Strategies”

To gain a deeper understanding of some of the areas mentioned in our blogs, are offering a free Credit Reference Agency Report. Click here for more details

To find out more about our services, click on the relevant links below: 

  • Support service– From as little as £30 per month
  • Training– Low cost webinars and courses to help you improve cash Collection performance and how to use the Court’s Small Claims process. 
  • Outsourced collectionsWe become your virtual credit control department. All communication with your customers is carried out in your name
  • Debt RecoverySpeak to us about our contingency fee service
  • Consultancy– Review and strengthen your ‘Order to Cash’ process in a practical way and coach your staff to improve performance and cash flow.

Or just call us on 03332 413 203 , email