Good Credit Control
In my last article I outlined some of the background work that needs to be carried out in setting a credit policy. However, all the background work can be wasted if your business systems aren’t robust enough to ensure you get paid on time.
There are many instances where failure of basic documentation, allowing a customer to delay payment, or even to refuse to pay, because a supplier has not been able to prove that the goods or services have been delivered. Good credit control is always assisted by the correct documentation in place at the right time and also ensuring that customer acceptances are recorded.
A considerable amount of routine documentation production can be computerised, cutting down on time and increasing accuracy. However, computerising your systems, does require careful planning to ensure documentation is produced on time and in the correct format.
Here are a few tips, to consider;
Accepting an Order.
At the time of accepting an order, either try to obtain written evidence of the customer's order, a purchase order, fax or email. It’s also advisable to produce a written sales order acknowledgement, which should include the terms of payment, and a ‘retention of title’ clause stating that legal title to the goods only passes to the customer on full payment. The benefits of written documentation are fairly obvious; both parties know exactly what is to be supplied.
It’s at the point of order acceptance that you need to test whether the customer is within their credit limits.
Delivering the Goods
Ensure that when you deliver goods, you provide some form of delivery note, stating which goods have been delivered, the quantity and the dated delivered. It is vital to ensure that you obtain a signature, on a copy of the delivery note, from someone authorised to receive the goods at you customer’s premises.
The number of times that customers delay payment, citing the fact that goods weren’t delivered, or the goods were incorrect, or the wrong quantity was delivered, is considerable. On many occasions it’s an excuse to hold back payment, and if you can’t prove it – then you’ve got a serious problem. But, to be fair to the customer, why should they pay, when you can’t prove that you have delivered their order correctly.
In the age of increased internet trading, having adequate delivery and recording systems is absolutely vital, as you will almost certainly be dealing with customers who are unknown to you and with whom you have no relationship.
Using reputable carriers, and ensuring that goods are insured during transit is vital.
Invoicing
Two simple rules:
- Invoice as quickly as possible
- Get the invoice details correct.
These might seems fairly obvious, but believe me things can easily go wrong.
Many years ago, I undertook an assignment, for well known engineering company, who had a subsidiary based near Sellafield. The subsidiary undertook work within the nuclear industry, but was constantly experiencing cash flow problems. Head Office were constantly under demand to provide funds to meet day to day costs. They became increasingly concerned, and as a result, I was engaged to investigate why. Within a short time it became obvious that the subsidiary hadn’t produced any sales invoices for two months. The MD stating they had been too busy, engaged in a major contract, to get around to producing sales invoices. I was astounded!
The managers of the business were technically excellent, but had completely missed the point when it came to producing income for the business. Sales invoicing being pretty important to the process. The faster you produce your invoice the quicker you will be paid. Simple!
It’s also important to make sure the invoice is produced correctly, otherwise this tends to induce an unnecessary delay in the payment.
The invoice should always state the agreed terms of payment.
Refer the invoice back to the delivery note, produced at the time of delivery so that the customer can match it to the specific delivery.
Even hen the invoice has been produced and sent, the job still isn't finished of course.
I would always recommend keeping some form of contact with the client, to ensure that they are satisfied with the goods/services, and keep alert to any possible problems that might occur that could delay payment of the invoice.
The next stage is making sure that payment is received.
This can be the hardest task of all, as it requires the customer to part with their hard earned money. I’ll cover this aspect in my next article.
Aldred Consultancy
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