Debtor Control

David_methodThis is an area that constitutes extensive and varied discussions.

First and foremost the business needs to have a ”Credit Policy”. While setting rules for a policy it must be clearly understood that in credit management, not always can rules within the policy be adhered to. There are instances more often than none where a business has to move away from its policy. Of course in these instances there needs to be designated persons within the business who have the authority to do so. These decision are made taking into consideration all risks involved. It is what is generally called “A Commercial Decision”.

As stated earlier a duly completed Credit application is a vital component of debtor management. If the contents of the credit application are validated and poses all of the requirements for debt recovery it gives the legal process a good chance for not only the recovery of the debt but interest and cost as well, leaving the business fully covered.

Employees charged with the collections of debts must be supported by management at all times. This will give them to confidence to achieve the desired results – keeping the debtors within the businesses trading terms.

Debtors must be made aware of the business trading terms (30 days 60 days) and also their established credit limit.

In the event of a debtor exceeding their credit limit or the trading terms or both, immediate action needs to be taken to rectify the situation.

A debtor constantly exceeding their trading terms should be monitored closely. Positive action needs to be taken to remedy the situation. If the account is not being managed satisfactory by the debtor, then credit facilities should be withdrawn. Reinstatement of the facility should only occur with  security covering the credit limit required. Delinquent debtors must be addressed swiftly. These debts must be recovered sooner rather than later.

If the credit limit is consistently exceeded the debtor should be contacted and the matter discussed. They may require a higher credit limit as the business has grown or an unusual large project that they may have secured. If this is the case a review should be conducted with a view of satisfying the debtors needs. If the requirement for an increase are not adequate the business needs to investigate other means if securing the debtors business – perhaps a bank guarantee to cover the increase.  Inadequate credit limits can cause disruption to deliveries. The credit team needs to work closely with the customer and sales to ensure that the credit limit is always adequate for the customers requirements. Credit Limits must always have the appropriate approvals.  It is also prudent to liaise closely with the sales personnel who should be aware of any pending project and would therefore require a review of the existing credit limits to ensure it can accommodate the requirement of the project.

Unresolved disputes can be a major concern to a business.  Unresolved disputes can very well be a determining factor in relation to a debtor paying their account on time.  Unresolved disputes can also mean the debtor may decide to go elsewhere for their product. In some instances you may find the dispute is for $2,000.00 but the customer is holding $20,000.00 until such time as the dispute is resolved.  Once again prompt action and follow up with the sales personnel is vital for closing out disputes.

Customer focus is absolutely vital for a business. Competition is stiff and therefore competition around good service in all aspects gives a business the best opportunity for new business and retaining their existing customers base.

Customer in general make payments within the trading terms required. The relationship the business has with the customer has a great bearing on this.

It is also important that the Credit Manager  and Credit Officers makes an effort to visit customers, not just when they are in trouble but just as importantly, on a service call. This usually gives the customer great satisfaction.