What is credit management and how can your business handle it?
Credit management is often a juggling game. You want to be able to make sure that your debtors pay you on time but on the other hand, you don’t want to ruin relationships by continuously chasing them for payment or using the wrong methods to do this. It can sometimes become a vicious cycle; your debtors’ inability to pay you on time can lead to your inability to pay debtors promptly.
Everyone wants to be paid on time and with late payments being the biggest issue that small and medium enterprises (SME) face, it’s understandable that collecting payments is at the top of the priority list for many businesses. While it’s important to be clear to your customers about the need for timely payment, it’s just as important to make sure you don’t do this in an aggressive way that will deter them from doing business with you again.
Here’s our guide on how to make sure your business is on the road to prompt payment.
It’s vital that in every business deal you handle, you and the other party have set out clear payment terms that you’ve both agreed to and written down in black and white. Once their credit term days are due or nearly due, you can start the collection process with a reminder letter or by a telephone call. There are several reasons customers can give for late payment or non – payment. Below are a few of them and how they can be handled.
1.“We’ll look into it straight away and give you a call back”
Regain control in this situation and offer to call your customer back at an agreed time to look into the matter. This way they’ll know they need to have an acceptable answer for you next time you call and that you’re serious about the situation. They may offer to call you back but if they don’t, you’ll be wasting valuable time by trying to get hold of them again.
2. “Your cheque is in the post”
This could be a valid reason and if your cheque is in the post, then ask some details to confirm whether this may be the reason. What the cheque number was, the amount, the date it was sent and whether it was sent by first/second class post. If your cheque isn’t in the post, your customer may not be as easily able to give the above details to you. If you still haven’t received anything in a few days’ time, give them a call again. Alternatively, are there payment methods you could offer customers allowing them to pay you more easily such as online or over the phone?
3.“Your invoice is in our system and is due for payment”
This can be very likely, both for small and large businesses; smaller businesses may not have a team dedicated to collecting and raising payments therefore it may take longer periods of time for each supplier to get paid. On the other hand, larger businesses may have a whole accounts team yet have a whole line of suppliers waiting for them to be paid with longer process and procedures in place. If the payment is urgent and has been delayed for some time now, ask the customer if they could manually raise a cheque, although not every company will have the facility to do this.
4.“The person you need to speak to isn’t available at the moment”
It could be likely that one colleague may not know the duties of a colleague to the next, even if they’re in the same department. Find out when they’ll be back and tell them that’s when you’ll be calling their colleague back and to pass the message on. If this situation happens more than once or twice, then escalate it to the next level of management.
5.“The person who signs the cheques is away from the office today”
If you’re chasing payment from a small company where only the owner may be able to sign cheques off, this could well be a possibility. Set a date of when you expect this to be done by, that they can agree to, and call again on this date to confirm it has been done. Make sure to keep chasing for this to be done so they don’t put it on a backburner. Again if possible, consider whether there are methods you could offer them to make the payment process easier.
Bear in mind, that your debtors are your investors as you haven’t made a profit from them until they pay for your goods or services. Manage your customer’s payment better with Experian’s ledger manager tool; it can help improve your collection process by taking your sales ledger data and combining it with our credit information. It shows you exactly where your outstanding money is and highlights the top debtors to your business so you can prioritise your collections and improve cash flow.