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Posted: January 11, 2012
Firstly, I'd like to wish all readers of this feature, (we know that there’s at least one of you!), and visitors to the site a happy and very prosperous New Year. Sure, it’s going to be a tough one but I reckon that, as the year progresses, we’ll see confidence returning to the economy – if only the media would cut out all this doom and gloom reporting they seem to like so much. Sky News happily reported that the FTSE100 had lost 4% in one day last year but where was the news that it had recovered most of that the very next day? Nowhere!
Christmas brought an interesting ‘question’ to our to our Q&A page. It was full of festive cheer or, more likely, festive spirit. It went along the lines that ‘You wouldn’t think Credit Control was so bleeping easy if you had to deal with my bleeping customers’. Well, Mr X of Coventry, quite simply, I wouldn’t have your bleeping Customers. Business is a two way street, you and your Customers are in it to make a profit not rip each other off. It’s all about give and take – and that’s not you give, they take. There was a survey a few years ago that suggested that UK Companies were amongst Europe’s worst payers. I think that’s wrong, we are amongst Europe’s worst collectors. The Customer is King but you cannot allow him to become a Dictator.
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I wanted to kick off this New Year starting from scratch, the basic fundamentals of Credit Management and Credit Control because if you get this right then you shouldn’t end up with too many bleeping Customers.
We are often asked, ‘What’s a Credit Policy and what’s it for?’
A Credit Policy document can be an invaluable tool in your business. It sets out all the basic criteria for who your Company is going to give credit to, what checks need to be done, what criteria need to be met and how credit limits are to be set. It details who has what authority in this process and to what level. It can go on to record the agreed collection procedures to be undertaken when collecting account, at what stage reminder letters and final demand are sent, when to involve Solicitors or try to recover goods etc. It sets out escalation procedures when dealing with Customers disputes. Everyone within your business then knows who is responsible for what and it can cut out a whole lot of confusion and the potential for Bad Debts. When things go wrong you have the opportunity to look back and see if the policy needs reforming. Is it too lenient? Has someone been given too much decision making responsibility? Is specific training needed to help people? Or, has someone just made a costly mistake?
Once written it should not be set in stone. I know of businesses who, in the past, have given £1000 credit to anyone who completes an application form. The reasoning behind this is that you could easily get this amount on a credit card from unsolicited mail that arrived on your doorstep. However, in the current economic climate, most people have abandoned this thinking!
Next time, I want to move on to Credit Applications and, most importantly, the credit vetting of new (and existing) Customers. We’ll be looking at the range of information sources available and how to make best use of them.