Top tips on credit management to keep the cash flowing
12 July 2010
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Good credit management can prevent business failure by ensuring adequate cash flow within a business. But looking at it more positively, good credit management is not just about minimising bad debts, but rather maximising sales and making optimum use of new technology, products and services that are there to assist you.

By adhering to the basic principles of credit management, and by adopting best practice, we believe that businesses can compete and grow, even in the most challenging conditions. There is no doubt that finance to support business is less readily available than it used to be, and so the credit management function is therefore becoming more important than ever.
 

Tip 1: Know your customer

Knowledge is power, as the phrase goes, so make sure you use it wisely.
  • Check the exact name and legal status of each of your customers (you will need this if you ever have to take legal action to recover a debt).
  • Use headed paper to verify company information.
  • Make sure the order is from the same entity.
  • Use a reference agency to verify details further and check their credit status.
  • Ask for references from other suppliers and verify them – as well as the other suppliers.
 

Tip 2: Agree payment terms before you supply

To ‘assume' is always dangerous, so be clear from the outset how you will conduct your business.
  • Do not assume that you will be paid on 30 days or end of month following.
  • Set out payment terms in writing and try to obtain written acceptance.
  • Make sure that your customer's order does not suggest different payment terms.
  • Set out penalties (late payment charges and interest) if payment is late – you do not have to invoke them, but the right to do so is useful.

Read our top credit control tips for establishing payment terms.

Tip 3: Invoice accurately, clearly and promptly

Attention to detail can make all the difference in getting paid on time.
  • An invoice cannot be paid until it has been received.
  • An invoice will not be paid if the goods or services are not clearly specified.
  • An invoice will not be paid if the customer's order number has not been quoted.
  • An invoice will not be paid if it has been sent to the wrong address or has the wrong company name on it.
  • A disputed invoice will not be paid.
Read more invoicing tips.
 

Tip 4: Do not be afraid to ask for payment

The only good customer is a paying customer, and if you don't ask, you might not get.
  • For large or important amounts, telephone before the due date to make sure everything is OK.
  • Make immediate contact with the customer when payment has not arrived.
  • Be assertive about what you expect and when you expect it.
  • Make the consequences of non-payment clear.
  • Follow up promises to make sure they are met.
  • Do what you say you are going to do, and do it when you said you would.
Read more tips on chasing payment.
 
About the author
 
This article was written by Philip King, Director General of the Institute of Credit Management (ICM), the largest professional credit management organisation in Europe. The ICM represents the credit profession across trade, consumer and export credit, promotes excellence in credit management and raises awareness of its vital role in business and the community.


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