To understand what credit control is, learning what credit is and its role in the way a business operates is important. Gone are the days where traders operate cash in hand. These days, some people carry around a rectangular piece of plastic that pays for things. That is what credit is essentially- it’s money that you don’t have on you at the time of sale yet allows you to buy goods or services with an agreement that you‘ll pay it back later. In a business case this could be with a credit account.
Businesses must be able to trust the person they are lending credit to as payment is not immediate when credit is involved. Going through credit checks to see if your client is trustworthy enough to extend your services with credit is imperative. If a client doesn’t end up paying, late payments or worse, no payments, could result in cashflow problems.
Credit allows clients and customers to extend the period between purchase and payment. The purchase becomes more desirable, especially as these days there are various options of payment such as paying in instalments. It’s easy and makes the purchase a lot more justifiable.
The advantage of credit is that it often improves sales for a business which leads to increased profit margins. However, issues can arise when credit is extended to customers with a bad credit history. Disputes with payments can create a domino affect and could ultimately lead a business, particularly SME’s (Small and Medium Enterprises) into difficulty and possibly insolvency.
This is where credit control policies come in. Having policies in place will not only allow customers to have a smooth experience, but also protect the business. Credit control policies will also provide a more uniformed approach from the business when tackling debtors.
One of the reasons why companies could end up with cashflow problems is because they are afraid of chasing up invoices. This is especially the case with smaller companies who may not have the time and resources (such as an internal credit control team) to help them. Outsourcing it to agencies like CTCC Solutions could be the answer for many businesses.
The role of the credit controller is almost like detective work, from going through your debtors (the businesses that owe money) with a fine-toothed comb to trying to solve the mystery behind why a client isn’t paying. Many small business owners may be hesitant to chase up the money they are owed in fear of losing those clients. However, by being firm yet friendly, you will usually receive a positive response from your customer. Remember, your customers also want to keep that relationship intact.
Credit control can be the difference between saving a business and going into a string of debt. So, remember to stay on top of those invoices, manage your cash flow well and keep your business thriving.
If you would like some advice or a bit more help with your credit control, then contact us at firstname.lastname@example.org or give us a call at 01209 823118.