In times of boom there is a tendency to give out credit in a free and easy manner to fuel the growth in sales. The seeds of most companies’ current financial problems were sown in the good times when controls and good practice were suspended in favour of continued uncontrolled growth.

The opposite is also true that when things turn downwards, credit becomes tighter the attitude to credit changes, when companies and financial institutions lose their appetite for granting credit which can have a negative impact on the business. While widely accepted that this is the reality, both approaches are wrong. You have to continue to grant credit in good times and bad, and you should always have some vetting of your customers and potential customers to ensure you will be paid in full and on time.

There are a number of essentials:

1. Have a full and proper account application procedure
   
2. Ask the right questions
   
3. Check out all relevant references
   
4. Perform financial checks consistent with the level of credit sought.
   
5. Write to your new customer, welcoming them and letting them know exactly what they can expect from your service and what you expect in return.
   
6. Apply a specific line of credit to every account and build in a constant review mechanism to allow for growth
   
7. Manage all new accounts carefully
   
8. Keep the lines of communication open at all times. Now more than ever, customers are looking for value for money and your survival in business depends on your ability to deliver it. You need to understand that the expectation of value for money does not necessarily mean working for nothing or cutting your margins to unsustainable levels, the purpose of business is to provide goods and services at a profit and that profit is only realized when the payment is received.

In difficult times credit can be used as a marketing tool if done intelligently, properly costed and managed correctly you can grow your existing customer base and your sales by providing the goods they want at a competitive price and excellent service. Here is where some businesses fall down, they build in all their quality systems around their products and service and fail to include the administrative process.

There are some essentials around administration:

1. Invoices:

• Must be produced on a timely basis
  
• Must be sent to the correct person or department
  
• They should include the customer’s order number if applicable
  
• They should be easy to read and understand,
  
• they must have a reference to the delivery or service docket
  
• The price and quantity must reflect what was agreed and delivered
  
• Should be clear
  
• Clear VAT analysis
  
• Your bank details should be included

2. Statements

• Should be posted in the first week of the month
  
• Should include a remittance slip with their account number to be returned with payment
  
• Should not show excessive ageing
  
• All credit balances should be investigated before they are
  posted

3. Reminder Letters

• Should be properly worded
  
• Sent only to selected customers

It is estimated that as much as 25% of the cost of doing business is for redoing stuff. There is a cost in delivering goods and sending out an invoice – if you deliver the wrong goods, you still have all the costs then you have the additional cost of collecting the wrong goods, issuing a credit note and then delivering the correct goods and sending out a correct invoice. Get it right first time – every time.

It is estimated that as much as 50% of your overdue balances are there because you have done something wrong yourself or your customer believes that you have. Your ability to keep your customers happy applies more to administration than anything else and this simple fact is often missed by businesses.

Implement even some of the changes you have learned here and you will see a real difference, if you have any questions or require help with any credit related issues – our contact details are below and we are happy to help.

Declan Flood FIICM, Founder and Chief Executive of Irish Credit Management Training is a, renowned trainer, international speaker and author with over 20 years hands on experience in Credit Control and Credit Management with major Irish & International Companies.

He is a graduate of the IICM Education program and a Qualified Business Coach. He received his Qualification in Training & Development from National University of Ireland. He has been training in all aspects of credit management for many years, generating a sense of enthusiasm and urgency that has been experienced by all who have been through the training experience.

His approach is effective without confrontation – and brings a whole new focus to Customer Service and Profit growth.

He can be contacted on

00 353 (0) 87 244 7052
declan.flood@icmt.ie
Website: www.icmt.ie