By: Dan Glickman
Mismanagement of cash flow is
the single biggest reason that small businesses fail. Therefore, a good credit control system is an
essential part of any business accounting procedure. Maintaining consistent cash flow, avoiding bad
debt and minimising late payments are essential for survival.
Use the following checklist to
set up an effective system.
1. Set up a detailed credit
control system
It must allow you to identify
invoices that have been raised, sent to customers or paid. You must also be able to see which
invoices need chasing up. Each customer must have a file with details such as: business name;
business address; postal address for invoices; and a contact name and number for invoice enquiries.
Train people on the system and test it thoroughly.
2. Credit-check your
customers
To do this, you can approach
their bank for a reference; use a credit reference agency; or ask their other suppliers. Establish
how solvent the customer is and whether they are likely to have any problems paying their invoices
on time. Be aware if you ask a prospect for a client reference it is quite likely they will have a
stock of good references - it is worth investing in more impartial ratings/references.
3. Decide on your general
payment terms
Most importantly, decide on a
payment date. Bear in mind that new customers should only be given a short time in which to pay. Go
through the terms with each customer and print them clearly on each invoice/contract.
4. Send invoices promptly
Try to send all of them out the
same day as goods/services are sent or delivered. Make sure the invoice is sent to the correctly
named and titled person, at the right address.
5. Start an automatic reminder
procedure
Flag invoices that are due and
send out reminders, and phone, to chase up payment. Most importantly, keep clear and accurate notes
of all letters/conversations including who you spoke to , the outcome of the call, and all relevant
dates/times.
6. Dedicate time and resource to
get into a regular routine
This should be a trusted
employee in charge of following up bad debts, who allocates the necessary and regular time to keep
on top of the task. They should keep a record of all calls and letters made.
7. Follow up invoices before
their due date
Pay particular attention to
larger invoices. Your 'debts czar' should know the 'invoice person' in every customer's business
(especially the Purchasing and Finance Departments) and be able to answer the following questions
at any time: Has the customer received the invoice? Where is it in the customer's authorisation
process? Who needs to approve the invoice for payment? Have they done so? When is the invoice
scheduled to be paid? How will payment be made? If a cheque has to be raised, who has to sign
it?
8. Have a stop list for
late-paying customers
Circulate this list to all
appropriate employees to prevent further credit or goods being supplied. Inform the late payer that
they are on the list.
9. Engage with a (reputable) 3rd
party, for assistance.
If
debtors are promising payment, but cheques never arrive, or they are simply ignoring your
calls/reminders - engage with a well established collection agency sooner rather than later, to
collect in bad debts, as the longer they are left the harder they are for anyone to recover them.
Also, if a debtor is struggling, for cash, you need to make sure you are the one shouting louder
than the rest for payment, and that you don't wait until its too late.
Article source: http://www.goarticles.com/cgi-bin/showa.cgi?C=289695
