Declan Flood, aka The Credit Coach, looks at a vital ingredient in your credit management function that, in his experience, is either overlooked or done very badly — the whole area of administration.
You have to send your invoices out as soon as possible after the delivery has been made. Waiting until the end of the month to send them is giving your customers a month’s credit before you even start! The rule here is that daily is best and, at worst, you should invoice weekly.
It is not good enough just to get the invoices out; there are four rules you must adhere to:
Your invoices must be correct – correct prices, correct quantities, correct products and correct invoicing address.
Your invoices must be complete i.e. correct order numbers, if required, correct contact name and correct delivery address, if different from the invoice address.
Your invoices must be from the customer’s perspective – not yours. You might know what a CB4567324X is – chances are your customer won’t. If they don’t know what it is, it could take longer for
payment to be processed.
You should also keep an eye on your uninvoiced dispatches. That is where you have generated a delivery docket and no invoice. If there are some orders in this category either the goods haven’t been delivered, which is not good from a customer service perspective or, worse still, the goods have been delivered and the docket has gone missing! The longer you wait to invoice for goods, the higher the number of queries and the higher the risk of not being paid at all.
Cash should be entered and allocated to the correct invoices on a daily basis, and all bank statements should be checked first thing every morning to ensure your information is always up to date. If you have any cash accounts, you should check that the balance is zero every day.
Now you may think that stock control and credit control are polar opposites, in my experience the accuracy of your stock reflects the accuracy of your invoicing. If your stock takes regularly throw up discrepancies, chances are there is a problem with your invoicing. Even if you find you are up on one item and down on another, chances are you are shipping one product code and invoicing another. That could have serious implications for the correct recording of your margins, so make sure you monitor and manage this area tightly.
On the standard stuff, your statements should be sent to customers who want them on the first working day of every month. Excessive delays cause payment delays.
Having a structured collection process is vital and accounts should be collected according to value and risk, we’ll go into this in more detail in the next installment. Keep it simple and keep it consistent; your success will follow.
The next Credit Management course is on 21st April – please contact Amanda on 01 298 0969 for more details.
Declan Flood: “In short, your credit terms should set out clearly and exactly when you expect to be paid by your customer.”
This Business Support article featured in the March/April 2016 edition of The Hardware Journal.