Effective Credit Control for Small Businesses

By Wizard Partner and CEO/CFO of Wizard of Ads Australia, Angela Arthur

If you are in a small business and you extend credit to your customers, you owe it to yourself and to the health of your business to implement some effective credit control procedures.  

Here are a few simple steps you can take to ensure your cash is flowing inwards on a regular and timely basis.

1. Make sure your Accounts Receivable function is computerized. If you refer to my previous article "Is Your Book Keeping Up to Scratch?" you will remember that it is time to come out of the dark ages, and get your business computerized. A computerized Debtors System will enable you to print reports that show exactly how much money is owed to you, who owes it and how old the debt is.  
   
2. Before you take a new credit customer on, have them complete a Credit Application Form. Your form should request information such as their:
•    full legal status (eg Sole Trader, Partnership, Trust or Corporation)
•    full legal name
•    trading name
•    address both physical and postal
•    phone number, fax number and email address
•    drivers license numbers of the owners/directors
•    the amount of monthly credit they wish to have extended to them
•    the names, addresses and contact numbers of at least three of their other suppliers so you can do a credit reference check
   
3. If your would-be customer is a corporation, have the Directors sign a guarantee. This means that if for some reason the company no longer exists, you have the right to pursue the directors personally for the debt.
   
4. Once you have approved credit for your new customer, make sure that they are advised in writing and made fully aware of your terms of trade.
   
5. Offer discounts to customer who pay earlier than their credit conditions as an incentive for them to pay promptly.
   
6. Make it the responsibility of a staff member to follow up outstanding debts. I have always found that a phone call once the account is a few days overdue is the most effective way. Letters are usually ignored.
   
7. If a customer tells you they are posting the cheque today, say you will be passing that way today and offer to pick the cheque up if it is feasible.
   
8. Once a debt has become too delinquent for your liking, it is time to consider suspending the customer’s account for all further purchases and enlisting the services of a professional debt collector.

Remember, it is up to you and your businesses cash flow as to how long you can sustain a delinquent account.