The easiest way to achieve anything is to be clear exactly what you want to achieve, as simple as this concept is it is one that is often missing in the establishment of our Credit departments. Managing credit is a constant balancing act between sales and finance. Sales would be happy giving all customers unlimited credit, Finance would be happy giving none! Somewhere between the two extremes lies the perfect answer for your business. Only give credit if it helps you to sell more. Set out in detail how much credit you are prepared to extend to different categories of customers, what flexibility you are prepared to accept and exactly who does what in the process.
2. Collection Process
This concept of process should be applied to all aspects of your business. The process should be documented, communicated to everyone within the company and the very best policies are discussed and agreed by all departments in advance of publication and signed off by the Chief Executive or Managing Director to ensure adherence by all concerned. The benefits of having a process are that you know exactly what should be done at each and every step of the way.
If you have to involve a number of people in the process then each should know exactly when their responsibilities start and end and what happens next.
3. Customer Category
In simplest terms we have small amounts and large amounts. This depends on the size of the business. For some €1k is a significant amount for others it could be a million. It is best to use Pareto’s Law here that 80% of the money you are owed will be from 20% of your customers. You need to treat the customers that owe a lot of money differently from the ones that owe a little. At the lower levels you should look to automate as much as possible: Online payments, Cash on Delivery, Direct Debit, Credit Card etc. At the higher levels open account is the norm and you should make sure the lines of communication are kept open with all your key customers at the appropriate level, so nothing is left to chance.
A second category I recommend is “Risk Category” with a minimum of training you should know who represents a high risk, a significant risk and a low risk to your business. As soon as this is established and noted you should set up rules to deal with each.
On the example given above you would have six categories of customer:
· High Risk High Value
· High Risk Significant Value
· High Risk Low Value
· Low Risk High Value
· Low Risk Significant Value
· Low Risk Low Value.
Then you assign a separate set of rules to each. To achieve excellence in Credit you should make sure you have clarity and a documented process for each category.