Credit Control Policy

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Credit Control
Contents Why should you have an effective credit control policy? What should your credit policy contain? How can you assess what a customer is worth? Why should your customer’s identity be important? Limited liability partnerships. Confusion over trading names Business Names Act 1985 How do you assess your customer’s credit risk? Why should data protection be important? Who is protected by the Data Protection Act? How does the Act apply? How should you get consent? Grey areas How will Data Protection issues present themselves? Why should you have a written contract? How can you implement your credit terms with a new business? The Battle of the Forms - whose terms and conditions apply? What should your Terms and Conditions of Sale contain? Why is your sales ledger important? Customer file Invoices Statements of Account Credit Limits Disputes. Overview of credit policy Why should you take up bank and trade references? Trade References Bank references Prevention is better than cure: How to secure payment from third parties Third party guarantees When should you seek a third party guarantee?

Practical advantages of third party guarantees Personal Guarantees Parent company guarantees Directors Guarantee Guarantees in General Calling up the guarantee Retention of title How to collect outstanding accounts • Invoice: • Statement of Account • First Reminder Letter • First Telephone Call • Consideration whether customer should be put on “stop” • Final telephone • Final Reminder Letter • Whether to pass account to a collection agency or to solicitors Some practical advice • Collect accounts logically • Ensure resolution of all disputes How should you deal with post dated cheques What should you do if your customer’s cheque bounces? • Cheque returned “referred to drawer” : • “Referred to drawer” – “please represent” • Post dated cheques: • “No account held” – (or account closed) • “Countermanded” or “Stopped”: • Cheque out of date: • Cheque is unsigned: • Words and figures fail to correspond: • Cheque returned to the effect that a liquidator or receiver has been appointed What should you do if you are unable to contact the payer?

Why should you have an effective credit control policy?
It is becoming less common for goods or services to be sold on a cash basis these days and it is widely accepted for businesses to offer credit. In doing this, businesses will incur a risk by allowing the purchaser time to pay for goods or services already supplied. To accommodate this business reality, businesses should ensure that they have a sound credit management policy. The need for effective credit control policies is even more important when considering new ways of trading such as by fax, e-mail and internet. Businesses should be aware that trade debtors can often feature as a significant balance sheet asset. Are these assets real or merely illusory? The extent to which a trade debt can be converted to cash will answer this question. If you have a track record of getting in the money which you are owed by your customers then the money you are owed really does represent an asset. If, on the other hand, you have only just begun your business or a large proportion of debts owed to you turn ‘bad’ then your trade debtors may not be as valuable as they first appear. Which category you fall into is most certainly a question that your bank manager will ask when he considers your business. A fully integrated credit policy should address the following:• • • • How should credit be approved for new customers? How should credit ratings and credit terms be set for new and existing customers? To what extent should new or existing customers be visited to give comfort that they will be good for the credit advanced? What action should be taken against customers should payment be seriously at risk.

And remember the old adage - “a sale is not a sale until it is paid for”. With this in mind, it is best to ensure the sales force is fully...
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