How to control credit Follow these simple guidelines to help you minimise your risk of bad debt. • What credit is normal for your industry; decide what credit period - if any - you need to offer customers to be competitive. • Consider ways of minimising credit risk such as offering discounts for payment with order, or accepting credit cards. • Draw up a clear statement of your payment terms, and bring it to the attention of any customer applying for credit. • Include your payment terms on all order forms, invoices and other financial documentation. • Terms should reserve your right to charge interest for late payments under the Late Payment of Commercial Debts (Interest) Act. • Use a credit application form to collect customer details, including a named contact, bank account, and trade references. Know who your customer is! • Assess the customers creditworthiness - through a credit reference agency and trade references from core suppliers - before granting credit. • Restrict the credit limit to an amount you can afford to finance and, in the worst case, to write off. • Set low initial credit limits for new customers, monitor payments and any changes in credit rating. • Establish where to send invoices, what details the customer will require, and whether they have any regular invoice payment dates. • Check outstanding credit balances when new orders are placed; be prepared to require cash payment if a customer exceeds their limit. • Fulfil orders correctly and obtain proof of delivery; sort out any problems immediately. • Invoice promptly and clearly; send monthly statements detailing outstanding invoices. • Chase payments in a firm but friendly fashion as soon as they are due. • Regularly review customers payment records and outstanding balances; be prepared to stop offering further credit to bad payers. • Monitor total credit outstanding in relation to turnover, and how quickly you are being paid, to check that your credit system is under control.
Posted on: Sun, 17 Nov 2013 15:40:47 +0000
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