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Why is a good credit control function so important?


JSP Credit Management thinks this blog was important because it is just as relevant for the sole trader as it is for the multi-national conglomerate. The picture above is a useful way of illustrating the difference which is going to be discussed in this blog below. The big jar of cash represents a company with a good credit control function and the little pile of coins on the left-hand side represents a business that is not giving due care and attention to its sales ledger.


Broken down into its constituent words, "credit control", is exactly what it says on the tin. It is the act of putting measures in place to control the level and profile of credit that a business extends to its customers. A "credit controller" is a person who is employed by said business to undertake the specific tasks involved in applying that control. A "credit control function" therefore is one, or several, credit controllers who work within a credit control department in accordance with a companies policies (often called a 'credit policy'), and procedures.


It would be appropriate at this juncture to dispel something of a myth which seems to be apparent to us having conducted some market research about this particular topic. When we refer to the word "credit", we do not mean a loan or any other financial instrument which is usually and commonly associated with the term credit. In fact, credit simply means when a company accepts an order from their customer and agrees to fulfill that customer's order and allow them to pay for it once the work (product or service) has already been given to the customer. So, in principle, it is the same as a bank loan.


The first part of this blog is going to speak to the sole trader or the SME, The organisation that has broken out into the big wide world of self-employment and has got to 2nd base. They have achieved something many businesses fail to do and achieve a steady flow of income. Yes, we see you! Time spent trading is irrelevant here, JSP Credit Management's owner Joe Postings actually started his own career in credit management doing credit control for a very small family-run business operating as a partnership of two people and two members of staff but had been trading for over 20 years!


We are talking to the people who are still the owner, the sales manager, the compliance manager, the finance manager, the administrator, the HR manager, and the IT technician all at the same time, of their own company. We are talking to you because we admire you and feel that you deserve some support - for free - for all your efforts. We are talking to you because we know exactly how it feels to be torn between conflicting priorities. The anxiety of thinking you need to chase up payment for those outstanding invoices but if you do not focus on getting in new business then you might lose out on much-needed income is real.


So what's the solution? Well, first things first we believe that when it comes to bad debts, prevention is better than cure. However, if you are at the stage of considering delegating the responsibility of chasing up payment of your outstanding invoices to a credit controller then allow us to offer some insight into what you can expect. A good credit controller will do the following:

  • Day to day running of the credit control function

  • Day to day Liaison with the head of finance.

  • Managing legal debt collection with solicitors where applicable.

  • Banking of cheques received.

  • Monthly debtor day reporting.

  • Monthly review of outstanding debts with the head of finance.

  • Credit Applications, including setting up accounts.

  • Monthly review of credit limits with the head of finance.

  • Perform credit control-related administration.

  • Ad-hoc management reporting as required.

What's more, a credit controller is much more than just a person whose only responsibility is to collect payments for your invoices. A good credit controller will also be a good relationship builder and through those relationships will be able to put your ahead of your competitors when it comes to re-tendering for contracts with your customers.


For the multi-national conglomerate's the advice is quite different. You already have a credit control function. Sometimes a very large one. The credit controllers might even be doing a satisfactory job. You might be seeing millions of pounds come into your account every month and you might be getting a lot of repeat work from your customers. You might even have made it onto their list of preferred suppliers which obviously stands you in great stead when it comes to re-tendering, but we know that process well.


A competitive tender process can force some companies to pitch the bare minimum they can possibly afford to in order to win the contract. We have even known companies pitch at a forecasted loss due to the strategic value of winning a contract with a particularly prestigious name in their sector. No problem, you can make the revenue up in other places, right? Well, the answer to that is that the numbers are irrelevant if your credit controllers are not performing to their full potential. A point that takes on an even greater significance if profit margins are being squeezed in order to win a contract.


So getting credit controllers to perform to their potential is something which JSP Credit Management has been interested in for over 15 years. The first question which should be posed is how is their potential being measured? In the corporate world, the potential is often measured and defined by way of cash collection targets which are imposed on credit controllers and we have known this to be a really useful motivational tool for credit controllers but we have also known it to be a significant adverse factor in their performance depending on how targets are set. Companies should pay careful attention to what is actually achievable when setting targets so as not to de-motivate their team.


What we have also discovered is that credit controllers are humans before they are credit controllers. An overdue invoice is always overdue for a reason. Sometimes that reason is the debtor cannot afford to pay at that moment in time. What this means is throughout the average working day a credit controller will be routinely ignored and avoided by the people they are trying to get to talk to and it takes an incredible amount of organisation and discipline to keep on top of avoidant payers, and when it pays off it feels amazing. Yet it can take its toll. Somehow though, credit controllers come to accept this as part of the job. Being avoided by external stakeholders is the norm.


What can happen in some industries though is the credit control function is shunned down the bottom of the pecking order in terms of priorities and when the credit control team are seeking support from internal stakeholders and it is not forthcoming it then starts to feel like an uphill battle which cannot be won for a credit controller. A credit controller is not a one-man army. Internal stakeholder involvement is often needed to unlock aging disputes on debts which the credit controller is unlikely to be in a position to resolve if it revolves around a dispute of the service provided since they are often detached from operational matters. Or sometimes they are asked to lean on their relationship with key external stakeholders to help move an aged debt along.


Without this reciprocity, a high-performing credit control team cannot function. So the moral of the story is a good credit controller can be an extremely valuable asset to any business, large or small but that is conditional on them being provided with the right tools, support, and environment for them to work their magic in. If not, it will surely show in your debtor days, and aged debt profile. JSP Credit Management has got extensive experience in providing an industry-leading credit control service. If you want to know more then feel free to contact us at www.jspcreditmanagement.co.uk.


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