Effective credit management is an art. This leads your company towards success. Obviously, a regular cash flow is essential for successful business. You need clients and every client wants credit because the client wants to use your money to enhance his/her business. This is a common practice. You cannot do business, without offering credit. So, you are bound to offer credit but you will have to look after the credit seriously.
There are some credit management tips that you can follow to manage your credit issues.
1. Devising a credit management policy
By devising a credit management policy, you make certain regular cash flow. However, you should not forget to profitability inborn during every sale. Clearly, with low profit margin, you cannot afford credit offerings or you cannot manage bed debts. Unquestionably, you are taking a big risk by offering credit.
2. Are you selling a monopoly product?
This is very important aspect when you offer a credit. If your product is a monopoly product and in the market, nobody offers the similar product, then you can easily offer credit. In such situations, you have better chances to stop supply and force the client to pay previous dues.
Some other small but powerful safety measures, you can adopt prior to offer credit. These steps will help to fortify your credit management strategy:
- The familiarity of your sales staff with credit policy of the company
- Prepare an effective credit application form that mentions all the terms and conditions, clearly
- Make a department to monitor every new customer’s credit reliability and payment schedule
- From customers that are not trustworthy, get a personal guarantee
- For every credit sales, set a limit and after reaching the set limit stop supplying the product
- Definitely, do not always offer credit because it is not the right of every customer
- You can obtain credit insurance
- A regular credit management is essential for your main customers
- Always use Terms of Trade that are fully documented
- The Terms of Trade must have a clause regarding Retention. Obtain the help of solicitor to draft the agreement
- Your Terms of Trade must have specified clearly the Credit Terms and the Credit Terms should start from date of invoice and the best is 30 days credit
- Ask for the bank statement
- Verify business addresses, phone numbers, VAT number and registration number
After implementing these credit management tips, you will highly secure.