No sale is complete until the product or service is paid for. It is cash flow, more than profit or sales or accounts receivable, that underpins the sustainable success of any business. Extensions of credit begin with a decision to provide a service or product up front, but that’s a long way from the end of the process. The health of any company is intrinsically linked with how these credit customer relationships are managed – before, during and after the sale has taken place.
It’s essential that the first step is the collection of as much information as possible on the potential customer and their credit history. Take time to properly review their payment behavior at other suppliers – it will give the best insight into whether or not they can be relied upon to meet the terms of your invoices.
You can establish your own credit rating by researching the available financial data, reviewing how successful they seem to be in their own business activities, and how they seem to go about managing their own resources.
Collect and analyze as much possible, look through available information in reports and press releases regarding assets and liabilities, and try to get hold of the balance sheet and profit and loss report.
Based on your homework, determine a credit limit that works for you and balances risk with what is a available at your major competitors. It’s also essential that you always receive a completed and signed request form from a new customer before the credit is extended.
Effective collection management
One key approach is to establish contact with your customers just before or just after the payment term on the invoice expires. You can do that – professionally and with tact – by calling to ensure both products and invoice were received OK. Remember to be also be specific in explaining precisely what your expectations are. Be very clear about the expected payment conditions and confirm a date on which the payment can be expected.
And if it still goes wrong?
If the payment then doesn’t arrive, it’s necessary to have a firm process in place for the next steps. In contact moments, it’s essential to come across as firm and clear but without resorting to threats. These will achieve nothing other than pushing your problem customer further away.
It’s important to try and understand what the issues are that your customer is facing. Why are they unable to pay their bill and meet their agreed commitments? More often than not, it may be due to an exceptional cash flow problem. Should it happen more than once though, it’s time to review whether credit should continue to be extended.
It could also be that your customers place orders at your company on a daily basis. In return for their custom, they expect rapid response and faultless delivery. You want to continue to meet their expectations. But what if they haven’t paid within the agreed term or have exceeded their credit limit?
In these kinds of situations, the problems can often be best handled by the relevant sales manager. They can liaise with the relevant customer and determine whether or not a credit block needs to be put in place until new agreements over outstanding amounts can be reached. If there appears to be a continual issue with payment behavior, it could be important to postpone deliveries until funds are received.
Wat er ook gebeurt, overtuig uw debiteur ervan dat het beter is om tot een oplossing te komen die goed is voor beide partijen. Dat is altijd beter dan dat u genoodzaakt bent om actie te ondernemen die op de langere termijn niet gunstig is voor beide partijen. En als dit gesprek leidt tot een overeenkomst, zet dit dan ook weer goed op papier.
When to switch over to a collection process?
You can’t get the customer to pick up the phone, they continually avoid payment discussions or report insufficient cash to pay the bill, the term is disappearing into the distance and every attempt to get hold of any of the money has failed. In short, you’re stuck. If you reach this position, the answer is to get a collection procedure initiated as quickly as possible. That will give you the best chance of eventually seeing the money you’re owed.
A good start is half the work
The majority of problems with debtors relate back to a poor initial evaluation of their credit worthiness, or a failure to continue monitoring their financial situation effectively. The cycle of failed attempts to collect outstanding monies is more the symptom than the cause of the issues.
It’s therefore essential to do the proper due diligence and conduct thorough research. After all, no credit controller wants to have to admit down the line that the customer should never have been extended credit in the first place. The final goal of credit extension has to be kept firmly in mind – it should support valuable new customers in making use of your products or services in a way that creates healthy cashflow for the business.