They often start off with a simple system and by adding bits here and there over time to deal with the myriad if different scenarios that arise,you find that the systems become so complex and so difficult and so difficult to navigate, they stop being efficient and effective..
We see this all the time in areas such as invoicing, pricing and supply chain management, all of which impact negatively on your credit function and ultimately on your cash flow.We also see it in areas such as staff bonuses, targets and KPI's, in some cases you would need a masters degree in Quantum Physics to be able to understand how they are calculated.
Just as we all have a need to spend some time to de-clutter our lives, we also need to take time to simplify our processes. Now, I would never advocate a "one size fits all" approach, still with a little thought and expertise, and a lot of planning with a clear vision of what you are trying to achieve, it can be done in surprisingly little time.
Wearing my "Credit Coach" hat, and having been involved with credit management for many years, I have discovered that the biggest barrier to success is the lack of joined up thinking.
Some senior managers are aware they have a credit control issue and fail to see that what they really have is a business problem that manifests itself in the ledger. Some senior managers are blissfully unaware that a problem exists at all, and as long as the DSO's remain constant, all is well. Never taking a step back and asking the simple question: If we give our customers 30 days credit, why are our DSO's over 60? Or in the case of a lot of small to medium businesses who don't even know what DSO is!
I got into credit many years ago, and being a simple person, I like simple. Here are my simple steps:
- Make sure you have a clear credit policy that is known and understood by everyone in the business.
- Get buy in from every department and senior manager in the business.
- Do everything you can to keep your customers happy, buying and paying.
- Check every balance on the ledger to make sure you know who your customer is.
- Vet every new account application form to make sure new customers are willing and able to pay their bills.
- Have clear credit terms and set clear lines of credit for every single customer.
- Send out correct and complete invoices as per the customers requirements.
- Have a clear collection process from start to finish, making sure nothing is left behind.
- Develop a robust escalation procedure for uncollected amounts and a clear write off system for uncollectible debts.
- Have clear targets for all concerned, that are challenging, achievable and easily understood by all.
Article written by Declan Flood, Chief Executive of Irish Credit Management Training. Who is available to help you to get your credit under control through focused credit management education, and training
Declan is also happy to deliver motivational training for your Credit and/or Sales Teams on how to improve your whole business through the proper management of credit and by developing simple risk mitigation strategies and by putting the customer at the front and centre of everything that you do.
He can also show senior managers how a credit focused business can improve sales, improve customer experience and improve the bottom line.
You can contact Declan by email at firstname.lastname@example.org or by phone on 087 244 7052. Always happy to help.