True or False: “I have a written Credit Policy that is a live document that everyone is aware of and adheres to.”
If you have answered yes to this statement and you are happy that your current document serves the business well – then well done, you don’t have to read any more. If you cannot answer yes to this statement or if you think your policy can be improved then read on…
Some Credit Controllers and Credit Managers might think we have gone into the area of the academic when talking about a written Credit Policy. Believe me, it is one of the simplest and best thing you can do to clarify the rules around granting credit. Here are five simple questions for you to answer:
1. Do you open accounts for everyone who comes along and asks for one?
2. Do you grant as much credit as the customers asks for in a given period?
3. Do you offer different terms to different types of customer?
4. Are there some sectors where you will only do business on a cash with order or a cash on delivery basis?
5. Do you have a different collection strategy for different customers?
To give you the answers – you should have answered “No” to the first two questions and “Yes” to the next three. In every case it is useful to write down your criteria for making decisions.
When do you open credit accounts?
What information do you look for?
What information is essential?
What information is optional?
What score do they have to reach?
What boxes do they have to tick to become a Credit Customer of yours?
Then explore what you do with each of these pieces of information and why it is a good idea.
What do you do if you decide NOT to extend credit?
Who has the authority to make decisions?
Who has permission to break the Credit Policy?
How often will the policy be reviewed?
As soon as you have your policy drafted, make sure everyone in the company has seen it and agree each element is acceptable and will be adhered to. Get the Managing Director to sign it and make sure every single person in your company gets a copy and are included in all revisions of the document.
It is also possible but not mandatory that you customers could be given a copy of it – this is how we do business!
In a single page I know it sounds easy - it isn’t. There will be conflict between sales, finance, credit and senior management and as long as this conflict is intended for the best interests of the company it is healthy and should be encouraged. The challenge is to create a document that everyone can sign up to and then deliver on all the time.
I am also aware that some small businesses when they see the words Credit Controller and Credit Manager think this doesn’t apply to me – well it does.
Small businesses suffer from bad debts and protracted delays in payments the same as bigger businesses, the problem is usually much more serious for smaller businesses as they are often depending on the money to pay the bills and more than likely their own wages – so is this important?
I suggest it is probably the most important thing you can do.
If you have answered yes to this statement and you are happy that your current document serves the business well – then well done, you don’t have to read any more. If you cannot answer yes to this statement or if you think your policy can be improved then read on…
Some Credit Controllers and Credit Managers might think we have gone into the area of the academic when talking about a written Credit Policy. Believe me, it is one of the simplest and best thing you can do to clarify the rules around granting credit. Here are five simple questions for you to answer:
1. Do you open accounts for everyone who comes along and asks for one?
2. Do you grant as much credit as the customers asks for in a given period?
3. Do you offer different terms to different types of customer?
4. Are there some sectors where you will only do business on a cash with order or a cash on delivery basis?
5. Do you have a different collection strategy for different customers?
To give you the answers – you should have answered “No” to the first two questions and “Yes” to the next three. In every case it is useful to write down your criteria for making decisions.
When do you open credit accounts?
What information do you look for?
What information is essential?
What information is optional?
What score do they have to reach?
What boxes do they have to tick to become a Credit Customer of yours?
Then explore what you do with each of these pieces of information and why it is a good idea.
What do you do if you decide NOT to extend credit?
Who has the authority to make decisions?
Who has permission to break the Credit Policy?
How often will the policy be reviewed?
As soon as you have your policy drafted, make sure everyone in the company has seen it and agree each element is acceptable and will be adhered to. Get the Managing Director to sign it and make sure every single person in your company gets a copy and are included in all revisions of the document.
It is also possible but not mandatory that you customers could be given a copy of it – this is how we do business!
In a single page I know it sounds easy - it isn’t. There will be conflict between sales, finance, credit and senior management and as long as this conflict is intended for the best interests of the company it is healthy and should be encouraged. The challenge is to create a document that everyone can sign up to and then deliver on all the time.
I am also aware that some small businesses when they see the words Credit Controller and Credit Manager think this doesn’t apply to me – well it does.
Small businesses suffer from bad debts and protracted delays in payments the same as bigger businesses, the problem is usually much more serious for smaller businesses as they are often depending on the money to pay the bills and more than likely their own wages – so is this important?
I suggest it is probably the most important thing you can do.