How to control credit
- 1 Identify what credit is normal for your industry, and decide what credit period - if any - you need to offer customers to be competitive.
- 2 Consider ways of minimising credit risk such as offering discounts for payment with order, factoring your invoices, or accepting credit cards.
- 3 Draw up a clear statement of your payment terms, and bring it to the attention of any customer applying for credit; include it on all order forms, invoices and other financial documentation.
- 4 Terms should reserve your right to charge interest for late payments under the Late Payment of Commercial Debts (Interest) Act.
- 5 Use a credit application form to collect customer details, including a named contact, bank account, and trade references.
- 6 Assess the customer's creditworthiness - through a credit reference agency and trade references from genuine core suppliers - before granting credit.
- 7 Restrict the credit limit to an amount you can afford to finance and, in the worst case, to write off; set low initial limits for new customers.
- 8 Establish where to send invoices, what details the customer will require, and whether they have any regular invoice payment dates.
- 9 Check outstanding credit balances when new orders are placed; be prepared to require cash payment if a customer exceeds their limit.
- 10 Fulfil orders correctly and obtain proof of delivery; sort out any problems immediately.
- 11 Invoice promptly and clearly; send monthly statements detailing outstanding invoices.
- 12 Chase payments in a firm but friendly fashion as soon as they are due.
- 13 Regularly review customers' payment records and outstanding balances; be prepared to stop offering further credit to bad payers.
- 14 Monitor total credit outstanding in relation to turnover, and how quickly you are being paid, to check that your credit system is under control.
- establish payment terms before you start selling on credit
- set and enforce credit limits
- chase payments as soon as they become due
- provide credit without knowing your customer
- offer credit you can't afford
- be afraid to insist that customers meet their payment obligations
- continue extending credit to customers with poor payment records