Cash flow is a lifeline of any business, and it will be affected if you have not devised a plan for controlling credit. Your debt will eventually turn into bad debt, which will increase interest, marginalize profits, and eventually lead to business closure. Yet, in many businesses, credit is the fact of the matter, and, by denying credit, you lose potential customers. By following a few simple measures, you can keep track of your credit, which will lower the risk of uncollected payments.
Steps to Controlling Credit
Research the Client
Before giving away credit to any client, you must do your research to ensure that they have a good reputation. Ask the client to fill out a credit application. The application highlights key information about the client, including the amount of required credit, who can access credit, credit arbitrator, and other relevant information. All of this information should then be assessed according to controlling credit policies, and the decision should be made whether to approve or reject the credit request.
Approve and Invoice Promptly
Once credit has been approved for a client, you should not wait. Generate your invoices promptly, along with a credit approval letter. The letter should state all terms and conditions, including due dates, interest, credit amount, and other primary details. This is a crucial step to ensure prompt payments as the client must know these key details in advance.
Maintain Updated Records
One of the recipes for efficient credit management is to preserve precise and current records. Aging of debtors that includes the time it will take to pay off the debt should be available at all times. If a client has been given special consideration in return for early payments, they must be kept separate for future reference. The way you perform your bookkeeping functions will have a significant impact on the management of your records. Therefore, always use professional services if you are in doubt about your ability to keep everything updated.
When running a business, some of your credit offerings will probably default as you are trading with a diversity of clients. Don’t panic, as this is normal in companies that deal with credit. Nevertheless, you are still required to formulate a policy that will accommodate all concerns related to outstanding payments. Typically, a phone call to your client will solve the issue. However, if that doesn’t work, you need to have a backup plan. Just like offering discounts for early payments, late payments should be met with fines or penalties so that the borrower will make a real effort to make the payment on time. Controlling credit requires you to set your penalties at an optimum level so that it does not lose customers or money.
Talk to the Right People
Every business has certain people responsible for making decisions and is in charge of setting the direction. When dealing with other companies, ensure that you are in contact with the right person as others might not have authority. You may end up making a credit deal with a low-level employee who doesn’t have much say in decision-making. One way to avoid such scenarios is by holding at least one face to face meeting with the client so that you are certain about whom you are dealing with. This should be a part of your controlling credit policy to ensure that credit is only offered to the people in charge.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.