credit control

Sales vs Credit Misconceptions

There is a popular misconception that the Credit Control Department is “anti-sales” and they will try to create barriers towards the sales effort wherever possible. This “Sales v’s Credit” attitude is wrong and can only be removed by strong personal relationships and education of the sales staff that a sale is not a sale unless the company is paid for it.

You can improve the process with a full understanding of each others roles, which are very similar in a lot of ways. Both departments want to –

1. Develop new business
2. Ensure continuity of that business
3. Make a profit
4. Achieve Success

The education process begins with regular meetings between the two departments. Discussions points should include, collection results, problem accounts, new prospects, unresolved queries, frauds and potential frauds, any information shared from Credit Circles or competitors on poor payers, cases that may go legal or to debt collectors and updates on cases that have already been passed to solicitors or debt collectors, and proposed customer visits.

The Credit Controller or Manager of Credit Control should visit prospective and existing customers as regularly as possible with the sales team. This again will cement the relationship between the two departments and give the Credit Controller a clearer understanding of the sales teams daily challenges.

In the same way each new and existing sales person should be given an induction to the role of the Credit Control Department and their key objectives towards profitability.

Selling – bringing home the business – is a tough job, especially in the current financial climate, and the sales team should be congratulated when any new business is received. The Credit Controller’s part in this process is to seek to do business at every possible opportunity. If a customer is deemed un-creditworthy, you should look for alternative solutions like Cash on Delivery, Personal Guarantees, or Guarantors. If the Credit Control Department decides to offer credit on the basis on the Personal Guarantees or Guarantors they should be thoroughly investigated first to ensure that they are credit worthy and also have assets should anything go wrong with the account so they could be pursued to recover any monies owed. Credit Control should never decline the account, without giving reason to sales.

The most important point to note is communication. Credit Control should always keep the sales department informed of any key changes to their accounts whether it be good or bad. Credit Control should never forget that the account also belongs to sales as well as them. The sales team are extremely valuable to many credit processes including collections, risk assessment and gathering information. The setting of clients terms and credit limits will also become an easier process when a good relationship exists between Credit Control and Sales staff. Monthly, or weekly meetings should be held between sales and credit control and all of the points in paragraph 3 should be discussed, documented, and action points should be noted and actioned before the next meeting. This adds to the commitment, trust and overall communication between the two departments.

If the sales team is treated professionally and with confidence, Credit Control will gain their trust and respect in their options, and future dealings will become easier because you are working together. Sales people and generally positive, driven people, and credit professionals should be equal to this attitude. The stuffy, blue suited, office bound individual is a thing of the past. The Credit Control department is the link between sales and finance and makes a real difference to corporate profits and liquidity. This should not be overlooked at any stage.

The Credit Control department should use positive language when addressing the sales team. They should not talk negatively about “blacklists” or “stopping supply” even though this maybe their only course of action left. Credit Control should use other phrases focusing on positive action and try to be pro active about highlighting potential issues with sales before they arise. Credit Control should praise sales on their successes and focus on how their customer skills and strengths can help Credit Control achieve their objectives.

Without sales, the company would not survive. Without money and cashflow, the company will not survive. Allowing credit accounts to clients is an incentive for sales to win business. This incentive comes at a cost, and the role of the Credit Control department is to keep the cost to a minimum by collecting, communicating, and minimising bad debt, and also creating a fantastic environment for clients that will ensure repeat orders for the sales team.

by slittle

Best Ways to Approach Collecting Your Ledger – Telephone v Letters

The telephone can be a very powerful tool and without question is the most effective method of collecting outstanding debts, but you must consider the time element involved in calling everyone in your customer base.

Ask yourself two questions –

1. How many customers do you have?
2. What are the values of your debts?

Based on the answer to these questions, you can structure your overall approach to the collections.

If your ledger consists of 10 – 20 high value accounts, ensure you call them all (or even visit them) personally. These are key accounts to your business and should be treated well in order to establish sound relationships with your clients and ensure prompt payment of the accounts.

If you have a good working relationship with a key client, do your homework, by building rapport with them. For example, if they tell you personal information about themselves (birthdays, anniversaries, names of children, or the area they live in) note them on the account and use them in future conversations. It seems simple, but this will highlight to the client that you are generally interested in what they have to say, which builds a better relationship with them, as well as keeping you a step ahead should you ever need to make a collection from them.

If your ledger is made up of 1000 – 2000 low turnover accounts, then it would be impractical and not a good use of your time to call them all personally. A structured letter cycle approach should be adopted. Please see my previous blogs Reminder Letters for Invoices Part 1 & 2 for advice on this.

Most commonly there will be a mixture of phone calls and letters. You should prioritise your workload to find a balance, ensuring your high value, high risk and prestigious clients always receive a personal call, whilst sending letters, faxes or email to your low value, low exposure customers.

Get it Right from the Start

The chances are if an account is not set up or chased properly at the point of opening, then its likely that it will fall into arrears. Make sure the correct checks are carried out when opening the account –

1. Do you have a credit application form completed?
2. Have you checked and called the telephone numbers supplied and do they relate to this particular client? (Always ensuring you have more than one number, and a landline as well as a mobile)
3. Have you checked the references supplied on the credit application form? Don’t just telephone the numbers supplied to check this out, check on Google maps etc that the addresses and companies supplied for the references actually exist. Fraudsters will supply you with fake address and company details for references and the number you call will probably just go straight to them or someone working with them and they will just tell you what you want to hear in the hope that you open the account and send them the goods.
4. Credit Check the Limited Company or individual and arrange a credit limit and payment terms based on your findings

Remember, how much profit can be lost from overdue accounts or bad debts, so its imperative you get this correct first time.

If there is any ambiguity in your contracts or payment terms, it may severely hinder your future collection efforts. If your quotes, order forms, invoices and statements send the wrong message or information, the confusion may be costly.

Ensure your business is not just selling at any cost, and expecting to pick up the pieces. If you think a particular account is high risk, look at your costs and factor in a higher profit margin where possible, so if the account goes bad then at least you will have recouped some of your losses already.

If you have a high account query rate, and you are experiencing consistent slow payment, there will usually be a reason for this. Its your task to ascertain the root cause of this reason, and resolve it.

A few very important points to remember and follow whilst collecting –

1. Always be polite and communicate effectively
2. Be persuasive and persistent and do not be ‘put off’ easily
3. Do not waste time – don let anybody waste your time – do it now
4. Use targets and spreadsheets to focus your collection activity

Remember that payment is as important a part of your contract as the goods, services, sales, dispatch and pricing policy. If you provide the best service to your customer, you should expect payment in the same manor.

Set Your Plan of Action

Firstly, ensure you call at the right times of day. 9.30 – 12.00 and 2.00 – 4.00 are generally the best collection windows, avoiding lunch and early departures. Try to arrange your day around these periods.

You should set yourself regular cash goals to target and monitor your collection efforts.

Remember to use the 80/20 principle. This will bring the majority of the cash your business requires. Use days Sales Outstanding (Debtor Days) to set yourself (or your team) cash targets for the month ahead, and adopt rewards and incentives (however small) for your key achievers.

Place emphasis on any ’90 day overdue’ balances (including problematic debts) to ensure they don’t become uncollectible. Memories become very distant as time goes by and its your job to ensure an account is never outstanding for too long.

Recovery agents have collected debts aged 3 years and over just by picking up the phone and communicating. The offending company simply told them ‘nobody has ever asked for it before!’ although I do understand these instances are rare it is sometimes worth chancing your arm to see what happens.

Use your sales ledger system effectively to produce relevant reports necessary to assist your collections (i.e an aged debt report or detailed invoice analysis), and keep credit control history logs for all customers up to date, with detailed notes so you know exactly what was said in your last communication with them. This can then be recalled the next time you speak to them.

Send your paperwork out on time (i.e invoices, statements, and reminder letters) and ensure you are following up any queries or issues with accounts .

by slittle