Controlling credit

Press, 3 August 1983, Page 25

Controlling credit

The sale of goods or services on credit is effectively lending customers money free of interest. Although credit sales are accepted as normal in most trading, they are based on the assumption that payment will be made no later than the end of the month after the date of purchase. If payments are not received on time customers are using the business’s capital free of chage to finance their own businesses. To maintain control over credit sales, the following approach should be taken:

® Seek business references from any new and unknown customers. Do not be hesitant, and if a customer protests, the firm may well be better off without his business any way.

® Limit the number of accounts to valued and regular purchasers. Do not be tempted to “charge it” because you are too busy to complete an invoice immediately, or your customer has forgotten his chequebook.

® Ensure that all goods are invoiced on dispatch or delivery to credit customers. Post invoices immediately to facilitate checking by the client and to enable any queries to be dealt with promptly. ® Follow up all overdue accounts. Every customer who appears in the secondmonth column of the debtor analysis has allowed his ac-

count to become overdue. A reminder notice on the account rendered is not enough. A telephone call to the debtor company verifying that the account is in order is advisable, as often payment is withheld as a result of an error in the original account. If the amount owing is acknowledged as correct, an explanation for the delay in payment should be sought and a settlement date arranged. Any such arrangements should be noted on the debtor-analysis sheet. If there is an evasive attitude when a payment request is made, a letter confirming the request should be sent immediately. Further inquiries should be made to find what the real prospects of settlement are, and an attempt made to work out a satisfactory arrangement to have the overdue account paid. Any further supplies on credit to such customers should be stopped immediately, and goods supplied on a “cash only” basis until the overdue account is paid in full. Actions such as this are normally sufficient to maintain good debtor control. However, if unsuccessful, further steps can be taken by pursuing legal action through a solicitor or using the services of a debt-col-lecting agency. The Small Business Agency has publications available on credit control and debtor collection.