The seven deadly sins of credit management

Ken Brown (pictured), Business Development Consultant at Chamber member Direct Route Collections, explains the seven deadly sins of credit management.

1. YOU DON’T KNOW WHO YOU’RE DEALING WITH You can’t hope to successfully collect monies that are owed to you if you do not know the exact legal entity of the debtor you are dealing with. By failing to determine the right information, you’re unlikely to elicit any sympathy or resolution in a court of law. It can cost you

dear when you realise after the event of supply that you’re not 100% sure of the entity you have provided goods or services to on credit.

2. POOR TERMS AND CONDITIONS Many successful and professional businesses have inadequate terms and conditions, or worse still, none at all. But, they are crucial when relationships turn sour with a client, or when a customer queries an order. You should have basic terms and conditions in place as

an integral part of your process when offering credit to other businesses.

3. SLOPPY PAPERWORK AND LAX ADMINISTRATION It’s unlikely that you will be consistently paid on time, every time, if you are lax with your admin. Wherever possible, your credit limits and dealings should always be with the company within the

group that is financially able to pay out even when a

financial problem occurs with their trading division.

4. COMPLACENCY You may have built up a degree of trust with your more established customers. They, too, will often feel that they have earned your trust and the right to ongoing credit with no questions asked from you. After all, they have always paid you before, right?

‘There’s a fine balance to strike between sales,

credit management and customer relationships’

5. FAILING TO CHASE OVERDUE MONIES PROMPTLY AND REGULARLY Having a credit risk strategy and chasing monies is all too often replaced by a ‘we chase money only when we need it in’ attitude. A robust and rigid credit control policy is essential to successful recoveries.

6. NOT TURNING DOWN POTENTIAL WRITE-OFFS There’s a fine balance to strike between sales, credit management and customer relationships. While there is little point in being turnover rich, profit poor, there’s also no value to be had in having

many customers’ suppliers that end up in credit notes or write-offs, so exercise sound judgement when it comes to potential write-offs.

7. NOT KNOWING YOUR CUSTOMER Managing your relationship with your customer from the start of your dealings with them can help reduce write-offs. Successful businesses that survive the tough times and thrive in the good times have robust processes. A thorough ‘prospect check’ can save much time and will indicate whether that prospect is the next golden customer or a potential liability.

Have you got a financial plan for 2020?

As 2019 draws to a close, many businesses will be putting the finishing touches to their plans for the year ahead, to get 2020 off to the best possible start. However, one of the trickiest things to get

right when it comes to business planning, particularly if you are looking to grow, surrounds financial performance. Andrew McGunnigle (pictured), a business

growth specialist at Action Coach Leicester & Nottingham, is a Fellow of the Chartered Institute of Management Accountants. He has been in the accounting profession for over 30 years and is currently a member of the CIMA’s governing body. He says that when it comes to planning for

growth, small business owners need to get to grips with the key performance measures of their businesses, of which finance should always be a key consideration. He said: “Many businesses put great emphasis on the compliance aspects of finance by keeping

and reporting their numbers. However, by the time they are published, whether that’s within the business or when reporting the statutory numbers, they are historical and – generally – not meaningful when it comes to planning what your business is going to do in the future. “Historical numbers can give you a trend

of where your business has come from, but they will not define what your business will do in the future. “Therefore, it is critical to business

success that you have a plan that includes absolute financial clarity, as this will define and create your future success. “It’s important with any plan to measure

your historic numbers. These will not just be financial ones. The first step here is to identify what the key measures of performance in your business are. “Ask yourself, do you know the key analytics

that drive your business? And are you measuring them?

“If not, you need to start. Most business

decisions are made without the right information to hand, which means they become a judgement, rather than an informed decision based on sound commercial data. This can result in the growth of your business being slow, at best. “If you truly want to manage your business performance and grow, you must measure your key numbers before you can truly measure your

success. “Once you’ve got a handle

on this, you can plan what they might look like in the future, in

different scenarios, and then work out the way to get them to where you want them to be. “It’s all about being clear on your objectives. If

you do not set goals, and write them down, how will you achieve them, and be successful?”

business network December 2019/January 2020 89

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