Credit Control: Effectively Managing Business Debts
When you are the designated expert and responsible for managing vital unsecured Domestic and International debt: How can you do everything in your power to make sure these customers are paying on time? How can you ensure there is better credit control in these business relationships?
What Makes the Perfect Credit Manager
Having a proactive credit management style is what will effectively protect proceeds both domestically and internationally. This means achieving this with clear communication; streamlined processes; and routines that are well established and always followed. It all boils down to having effective credit and A/R management processes in place to not only reduce the risk of bad debt; but also save money on debt collections. The perfect Credit Manager understands client and country-specific needs (VAT treatment, supporting documentation, etc.) and, monitors and reports on team performance to enable continuous improvement. By taking this more proactive approach, this eliminates many of the problems associated with late payment and loss of profits.
Establishing Comprehensive Credit Controls to Minimise Vulnerabilities
A proactive credit manager:
- Closely manages and monitors unbilled revenue and missing data, to enable more timely invoicing while also ensuring the accuracy in billing.
- Creates SMART objectives for his/her team. For example, a specific, measurable goal would be: “In order to help control bad debts to < 25 % of total sales, the collection department should call every account within ten days of becoming past due.”
- Incorporates processes and guidelines for key Accounts Receivable routines (eg how to make account notes following discussions with customers) to drive better communication and establish some consistency.
- Analyses the Accounts Receivable Ageing Schedule and reviews aged debtors on a weekly basis to readily identify the root of any potential cash flow problems. This helps ensure that aged debt remains within agreed targets.
- Uses analytics to maintain an accurate forecast of receivables and provides weekly billing and debtor summaries to business teams. This increases communication and helps build positive relationships.
Monitoring Customer Account Activity
If you conduct regular credit checks on your main customers and look out for any debtors who are over due by 90 days (unless within agreed credit terms); this lets you know that these accounts may demand some attention. If you wish to carry on a relationship with a customer in this position, it is a good time to try to understand their payment and credit issues. If they are open and honest about their situation and committed to maintaining a relationship with your company, there might be a way to negotiate repayment plans. When you regularly monitor customer activity, this gives you a good overview of all your customer accounts so you can look into who your riskiest customers are. Once you know who is paying you the slowest or, who has stopped paying you altogether, you can begin your collections strategy.
Using strategic predictive analytics is an efficient and cost-effective way to prioritise your collections efforts. This allows you to target the right debtors at the right time, with the right communication strategies. With predictive analytics, you can:
- Prioritise collection accounts based on accurate, timely and relevant data. It simplifies the process of sorting customers into specific priority lists with red, yellow or green alerts. This makes it easier to know who you need to contact and also makes tracking and resolving outstanding payment issues more effective. In this way, you can try to communicate with them by sending follow-up inquiries and negotiate with these past due accounts, if possible.
- These analytics also help predict which delinquent accounts will self-cure or which accounts need the most intensive effort. These predictions are pretty accurate and can tell you whether the account is likely to pay; or how likely a delinquent account will pay over a given time period. When you can identify those self-cures, this saves on collection expenses and helps reduce the possibility of losing these customers.
- Having this in-depth look into your customers also helps you understand that with certain accounts, no matter how much time and resources you devote to them; the investment is no longer worth it. These analytics identify the point where collection strategies are no longer profitable for these specific accounts, so you can optimise and focus your efforts where the return is the greatest.
The Final Outcome
Sometimes when you have taken every available measure to effectively manage these debts and minimise vulnerabilities; there is still a chance that you are unable to retrieve payment. This is the time to coordinate with sales and other departments/divisions on the best ways to handle and resolve these disputes. This means possibly stopping supplies of goods to late-paying customers or starting legal action to recover these debts. A Business Debt Recovery Solicitor is a good option here because they can send a formal letter to a customer(s), which is usually effective. In this letter, they detail what the debtor owes with a set time period in which they need to pay. It’s also a good practice to have a Solicitor on your side when you are trying to recover money from a customer who is not only in a different time zone; but also has different laws and customs to abide by. When this is the only option left, you shouldn’t feel guilty about using these services to collect a debt because ultimately, trust is broken. As a business, they owe you this money for the goods or services you provide.
Free Letter Before Action
Guide & Template
How to write the best Letter Before Action to recover your debt in 7 days