Credit Management Mistakes that are Impacting on your Business

Hello my fellow entrepreneurs,

Do you feel like your customers are treading on you with delayed payments?

You are not alone. Thousands of companies across the world are feeling the pinch from some of their customers not treating them with respect and making late payments.

Small business entrepreneurs find it difficult to make their own payments to suppliers and employees if big companies do not play fair and fail to make their payments on time.

There has been plenty of media attention in 2017 where Federal Governments around the world have tried to regulate larger size companies to pay smaller size companies in a more timely manner.

Today, i wanted to share with you some credit management mistakes that i see quite often and these mistakes can be impacting upon your business. Please take a moment to review these common mistakes to see if any of these mistakes apply to your business. If you are experience any of these mistakes, now is the time to correct these mistakes before they impact upon your business.

Let's be honest. Not many businesses have a formal credit management process in place. This can be hurting your business without you knowing it. Please do not be daunted by the sound of setting up and implementing a credit management policy. It is simple process. If you are sending 10 or more invoices a month, it's probably time to develop a credit management policy and process. More details on how to set up a simple workable credit management policy will be covered in my next blog.

Credit Management Mistakes

1. Not sending out invoices to your customers. This is a common scenario particularly with small business entrepreneurs not sending out invoices or sending invoices out late. If you are not sending invoices out, you are definitely not going to be paid. If you send invoices out late and expect to be paid immediately, you are going to get some angry customers who will your payment more. Once the job is finished or the product has been sent to your customers, send them the invoice immediately. Most cloud based accounting software packages will allow you to email the invoice to the customer.

2. Not all customers are the same. Certain customers may request specific invoicing requirements for the products or services. If they do not receive the invoice as per their requirements, then payment will be delayed. Every time you get a new customer, ask the customer if they have any specific invoicing requirements and who is the person to speak regarding payment.

3. No Credit Application. If a customer is seeking credit from your business, they should complete a Credit Application form to show if they are worthy of credit. Your team will need to verify the accuracy of the Credit Application before granting credit. You will need to also be aware of customers acquired through your website if they are seeking credit. The same process will apply to those customers as you would treat other new customers walking through the door.

4. No Conditions of Sale. A Condition of Sale should form part of the Credit Application process and should be included on all sales invoices regardless of whether you are selling online or offline.

5. Payment terms are not clearly stated. Are you payment terms clearly stated in your Conditions of Sale and your invoice? Do you charge late payment fees? If so, is the customer aware of these fees?Are the late payment fees mentioned on your invoice and included in your Conditions of Sale?

6. No Credit Limits. A credit limit is the amount of credit that you desire to give to your customers based upon their request for credit and your acceptance of their request. The credit limit that is granted to your customers should be built into your desktop accounting or cloud accounting software. The alarm bells will ring when you prepare an invoice that takes the customer over their credit limit. It is possible that your customer has some outstanding invoices that require payment before you do any more work or ship any products.

7. No follow up with customer for payment. A deadly mistake. If you do not follow up payment with your customers, they will not be so eager to pay you. Luckily enough, most customers do not need following up with payment as they always pay on time. Not following up with your customers indicate to them that you do not have a credit management policy in place. Tomorrow, look at your customers who owe you money outside of their credit terms and telephone them to chase up payment. If you do not like telephoning your customers, send them an email reminder plus a copy of their latest statement. If they do not respond to your email, telephone these customers. Some of your customers might be glad that you rang them. Perhaps a payment plan might be considered if a customer is struggling. If a payment plan is arranged, put the payment plan in writing and get your customer to sign the payment plan.

8. Thanking your customers for their payment. I do not see many businesses thanking their customers for payment. Send your customers a short email to thank them for their payment. You will see that it helps strengthen your relationship with your customers.

My fellow entrepreneurs, these are just some of the common mistakes that i see frequently with businesses that do not have a simplified credit management policy and process in place. If you need assistance with setting up a credit management policy and process, please send me an email at wealthvisionmastery@gmail.com and I can send you further information.

In my next blog, I shall be writing a similar blog for the professional services industry (legal and accountancy groups) where their credit management policy is slightly different from what i have discussed above.

Please feel free to leave any comments to this blog.

Chat soon.
Peter Adams