What Definitely Not To Do In Credit Management

We sometimes reference famous names when writing our blogs, such as Karl Marx, and other notable scholars who might have contributed to our way of thinking and perhaps our approach to our work too. Another one of those scholars whose work has caught our attention on more than one occasion is that of former APA President and Psychologist Martin Seligman.

Some of Seligman’s work is of the scale that it seems to appeal to the general population. His theories on learned helplessness for example are particularly interesting. But it is his work on the concept of ‘positive psychology’ which is arguably his most seminal. He believed that there was too much focus on the negative side to psychology rather than the positive.

Why is that important to us now? Well, there are signs of positive psychology subtly embedded into the way we operate and usually evident in our content strategy too, where we prefer to focus on the positive steps that companies and individuals can do to make their situation even better, or even prevent their situation from becoming worse. But today...were going against the grain!

Why? Because whilst we thoroughly enjoy a positive approach to our work, it doesn’t always, and fully, reflect the way that humans actually feel motivated to do things. Our implicit assumption in that statement being that even in business this applies because businesses are ultimately run by humans. So, what is the alternative? We think it is about knowing how to avoid pain too.

We are not in the business of scaremongering and were not for a moment suggesting that this is relevant to everyone. But what we do feel duty bound to do is be realistic about the risks that businesses are exposed to when their credit management department is not given its fair share of TLC. We’ve written about the current insolvency statistics affecting companies struggling for cash in earlier blogs.

So, next then, we want to present our thoughts on some of the most common and potentially risky decisions to make as a business when it comes to managing your credit management. It is based on anecdotal evidence rather than scientific evidence, but we have been in the industry for a while, in one guise or another and over any extended period of time patterns begin to appear so we feel fairly well placed to make such claims.

Our first suggestion relates to the decision on whether or not to extend credit to your customer. If all of your competitors are extending credit to their customers and your demanding payment upfront, then yes, that is one sure-fire way to make sure you never get paid late for the work that you do, more from a bigger picture point of view, you might also be losing out on a lot of customers to your competitors as a result.

A lack of cash in a company can come about through a variety of reasons. Non-payment of your invoices is just one of them. Other reasons that should be given just as much attention (and often do get more attention) are not generating enough revenue to cover your expenses, and not earning enough profit to cover the flow of cash in and out of your business, a problem which is particularly sensitive to your credit management performance.

There are a great number of ways to protect your cash flow in many of those instances, except perhaps where the revenue number is not where it needs to be, in which case it’s a sales issue. Many businesses choose to try and predict future credit risk problems by vetting their customers before they open up a credit account for them. One of the more common ways to do that is by getting a business credit report done on them first.

One of the next key decisions you will make is with regards to your payment terms. If you have never come across this term before then it means, amongst other things, how long you will give your customer to settle your invoice once you have sent it to them. A common option here is to give 30 days for your customer pay but again, it would be worth trying to find out what the norm is for your industry.

However, what we warn strongly against is not mentioning it whatsoever. We have unfortunately seen some very large companies enter into framework agreements with clients on multimillion pound contracts that have taken months to agree upon, only to find out once it has been signed by both parties that payment terms have not been included in the framework agreement exposing them to serious problems with aged debt.

Another often seen problem is not getting billing instructions nailed down before work begins. Yes, we understand that many companies are suffering from cash-flow problems at the moment and that will pose challenges to obtaining payment for invoices on time but in no world has it ever made sense to ignore or overlook a customer's billing instructions. This is really critical to getting paid on time.

Some customers, usually the larger companies, have some quite convoluted procurement systems. We have seen some billing processes that have taken several days to complete in order to satisfy a customer's requirements due to the complexity of them. At the very least, it is important to find out where the invoice needs to be sent, exactly how much should be charged and if there are any reference numbers, such as a purchase order number, that need to be quoted on the invoice.

We fully understand that many businesses are absolutely working to capacity, whether it's because you’re a start-up business that is having to manage a business on a shoestring, or a larger company that has a budget for its credit management department that is being squeezed due to other business priorities. However, in our own experience a quick call or an email to a customer just before an invoice becomes due for payment can also really help ensure prompt payment.

What this does is help to capture any last-minute disputes, or hold-ups due to systemic or technical problems, and it is often a requirement for many companies that require their credit controllers to supply cash collection forecasts monthly to senior management. Another collateral benefit to this is that also helps to build a warmer relationship between you and your customer and sometimes the strength of this relationship can mean the difference between getting paid or not.

We are here to do a bit to businesses safeguard their cash flow against late payers or debtors that are refusing to pay, so if you have been struggling to get an invoice paid and would appreciate the support of a team who pride themselves on operating in a way that is mindful of the above then visit our website at and contact us to discuss your needs. We work on a no-win-no-fee basis for bad debt recovery and our credit control and credit risk services can be ordered via our website with the littlest of hassle.

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