There are many dimensions to that question:
When I say “clear credit terms” I mean it. Is the reader completely clear exactly when payment is expected and when it should be made? Too often I see lines like “30 days” or even “Nett 30 days” or “Net 30 days” or “strictly 30 days” and to be honest if you ask ten different people you will probably get ten different answers. If goods are ordered today, dispatched tomorrow, delivered the day after, invoiced the day after that and the invoice is received by the buyer next Monday what date should payment be made?
Is it 30 days from date of order, date of dispatch, date of receipt, date of invoice, date of receipt of invoice or even month end following invoice?
What do you mean when you say payment? Does that mean the money is in your bank? The money has been sent from their bank? The cheque is on your desk? A bank draft is on your desk?
The great thing is that if we can have so many different answers from the credit people – just imagine how many variations you will get when you add your sales people, your customer’s buyers and their accounts payable departments and finance people.
As the person responsible for credit, it is your job to explain to all relevant people exactly what you mean through examples:
Payment is due on the 30th day following the date of invoice
Payment is due on the 28th day of the month following invoice
Payment should be in our bank on or before ______________
If you are looking to be paid on individual invoice – this works best if you have a one off purchase – if you are supplying goods on a daily, weekly basis do you really expect to get a cheque every day 30 days after the date of each invoice – leading to many cheques being issued and received increasing the workload on both sides – may not be considered a great idea.
One line I hear often that upsets me: “Oh, our terms are 30 days but nobody takes them seriously”
It is up to you to take them seriously, it is up to you to make sure everybody knows exactly when payment is expected, and it is up to you to make sure payment is made exactly when it is expected.
One of the first things we do when we provide an independent credit health check to our clients is to make sure they are sending out a consistent message, from their New Account Application Form, Their Terms & Conditions, Their Invoices and Their Statements – you would be amazed how many times there are inconsistencies here.
I always maintain that Credit Management is simple, it is up to you to keep it as simple as you can and this is a very important area that will decide how successful you will be in the Management of your own Credit.
This is the first important step to achieve success in Credit.