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What is Credit Control?

There are many facets to credit control. While most businesses would prefer their customers to pay for their purchases on or before delivery, extending credit to certain customers can mean more sales. At the same time, you want to know that the people you’re offering credit facilities to are likely to pay their debts, and since you don’t want to wait too long before you’re paid, you’ll offer specific terms stating how much they can buy on credit and when payment is due. 

If they don’t pay on time, you’ll start following up with your debtors, reminding them that they have outstanding accounts. By collecting outstanding debts, you improve your cash flow and reduce your business’s risks. If all else fails, you will ultimately hand over the debt to a debt collection agency or a lawyer in the hope of ultimately recovering the money owed to you.

What is credit control? To sum all this up, we can say that it’s a set of policies and activities you use to determine who to extend credit to, how much each customer can buy on credit, what your terms are, and all the steps you might take to get debtors to pay you. 

Credit Control Policies 

Extending credit is always a risk, but some risks are greater than others. Some companies are very careful about who they extend credit to, and this approach is termed a “restrictive” credit control policy. Others make it easy for customers to buy on credit and have a “liberal” credit control policy. Businesses frequently choose a middle-of-the-road approach and they’re said to have a “moderate” credit control policy. 

Your credit control process, and the policy you adopt, will be based on your attitude toward risk. Having a restrictive policy means that you take few risks, but you could lose sales because it’s difficult to buy from you on credit. Having a liberal credit control policy makes it easy for your customers to buy on credit, but it’s risky because your business could land in financial trouble if your customers don’t pay.  

How to Identify Credit Risk

When extending credit, you’ll be interested in your customers’ financial health. For example, you may ask for bank statements, ask about their earnings and assets and find out what their current debt burden is. You should also delve into their credit history: do they usually pay their bills on time? Have they previously been taken to court over outstanding debts? When dealing with businesses, you’ll usually be looking at extending credit for purchases with a higher value, and since this means more risk, you’ll be even more careful. 

Whether investigating extending credit to individuals or companies, UK businesses usually do their credit checks through credit reference agencies like Experian, Equifax, and TransUnion. You should even be able to see the credit limits these agencies recommend for each customer, and staying within these limits helps to reduce the very real risks that go with covering your business’s costs and then not receiving payments from your customers. 

What is a Credit Controller?

If you extend credit to your customers, you need a credit controller. This person or team of people must monitor the credit your company extends to its customers, ensuring that they qualify for credit and pay their invoices. Activities include sending out statements, calling customers with outstanding accounts, sending written reminders, reconciling accounts, and reporting to financial managers.

Although the job may sound very factual and numbers-based, credit controllers need excellent people skills. They must have the ability to interact with their company’s leadership as well as its clients. And since it’s a job that’s all about money, tensions can run high, so they need to be able to remain calm under pressure. A good credit controller must have the ability to work with credit control software, but they must also have excellent customer service skills. 

Outsourced Credit Control Services: Should You Use Them?

As with any business function you outsource, the results you get will depend on who you outsource credit control services to. The time-consuming work of following up on payments, for example, can be outsourced, but you must be certain that the job will be tackled in the right way. 

Your company deserves to be paid, and your clients agreed to the terms you offered – but a gentle approach is more effective than irate demands when persuading debtors to prioritise the payment of outstanding invoices. If your credit controller alienates your debtors, you can be sure that they’ll delay payment for as long as possible – instead of settling up right away. It’s a delicate matter, and you need help from a company that has turned dealing with customers into an art. 

Strange though it may seem, following up unpaid accounts through credit control means “selling” the idea of paying your invoice. It takes empathy, patience, and there are times when it will require nerves of steel. 

RSVP, a London-based company specialising in all things customer-service related, offers back office services that include the credit control functions you’ve always wanted to outsource. Let us help you to collect outstanding payments while leaving your customers feeling nurtured and respected. It’s just one of the ways we put our team’s superb communication skills to work for our customers. Will you be the next to benefit? Contact us today!

 

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