The Credit control function Flashcards
Bank references
Banks have been traditionally a valuable source of information
There is usually a charge for a
reference
Band reference are vague and do not go into details
How useful are trade references - assessing Credit assesment decision?
1) Provide evidence whether a business pays its other suppliers in accordance with their payment terms
It is useful because the business would stick to their payment
terms
2) Tell us about credit limits the business is getting from other suppliers
It is useful we know what limits they are used to working with
3) The business is more likely to choose the best references
How useful are bank references ?
1) Obtain information about the financial position of the business
from third party.
Loyalty with the customer
2) vague information
3) Standard phrases may need interpreting to ensure the fulls understanding
Methods of communications with customers
1) Telephone
2) Statements
3) Chasing letters
4) Solicitors and debt collection agencies
Methods of communications with customer - Telephone
If the customer’s account is overdue or if there is a dispute on the
account these sometimes can be quickly and cheaply cleared up with a telephone call. When making a call, it is important to keep the call
professional and to make a note of the date , the reason for the call, and if any action or outcome arose from the call. It is also good practice to
record the name of the person spoken with for future reference.
When calls are not answered or messages not responded to this
can also give an indication of the credit status of a customer
Methods of communications - Statements
Statements should be sent to customers on a regular basis , for
example monthly and also when a particular debt is being
pursued. The statement needs to contain all the relevant information
including dates, invoices , credit notes and payments made. The
statement may also include a remittance note to facilitate payment.
Statements may be sent by post , sent by email or through
secure online portals.
Methods of comminications - Chasing letters
A first chasing letter should be a gentle standardised reminder
to encourage payment. At this stage, the non-payment may be on
Oversight of the customer and a reminder letter may only be needed
to obtain payment. If paymen is not forthcoming, then a firmer letter
can be sent and may be composed on an individual basis and
may be escalate to the chief credit controller for signing.
This and subsequent chasing letters need to contain details of
The amount owing, the obligations Of the customers to make
payment and possibl consequences of non-payment.
Consequences Can include having the account put on stop and
possible legal action.
Methods of communications - Solicitors and debt collection
agencies
The credit control function will also need to instruct solicitors and
debt collection agencies to take appropriate action.Communications here will be formal and stating the facts of each specific situation.
For speed and efficiency, email is a popular form of communication
between Solicitors and other agencies. If emal is used, then
these need to be saved for future evidence if need be.
Credit rating /reference agencies
They are organisation who maintain databases of information about individuals and businesses. The amount of information can be detailed
( eg paymen history , bankruptcy proceedings, court judgements etc)
but can be out of date
Credit circles - External sources of information
Credit circles are a group of businesses in the same
type of industry who have customers in common with
each other and who meet on a regular basis. The sharing of information
can give useful and timelyinformationon any possible problems
with customers
Trade publications and media - External sources of information
They can sometimes be useful when considering the type
of business a potential customer is in, and can help to see
what overall trade views are on specific businesses , although
it is important to check the facts behind any opinions
provided in articles
Sales director roles to grant credit
Receive bonuses
The sales director should leave minimal input when assessing whether
to grant credit. Whilst she / he maybe knowledgable
about the industry , her/ his role is to increase sales and
undertake marketing activities and she /he may not be
knowledgable about the process of credit control and the
importance of liquidity and credit management
The sales director’s role is primarily sales driven and she /he maybe
influenced by the fact the she/he receives a bonus based on the
amount of new business
Why refuse credit?
Poor financial analysis
Poor trade reference
Bank reference non-committal
Lack of financial history
Lack of trade or bank reference
Poor credit score
Poor information from credit circle or in the press
Doubt as to whether references or financial information provided is genuine
Credit insurance
Outline some of the key ways that the credit control department can communicate with customers when trying to recover debts due
1) Statements
2) Telephone call
3) Reminder letters
4) Collection agencies
Statements
A statement can be sent at regular intervals (usually monthly) outlining invoices and credit notes
sent, and payments received in that period. Statements can be sent in the post but other (faster)
methods such as email can be used to prompt the customer to make a payment
