How to monitor credit - a checklist

If you offer credit to your customers, you run the risk of late payment or even no payment. So it is important to establish the facts about those you offer credit to and make your payment terms clear.

Here we look at a checklist to show you how:

• Identify what credit period is normal for your industry and decide what credit period - if any - you need to offer customers to be competitive.
• Look at ways of reducing credit risk such as offering a discount if payment is made with an order or asking for a deposit.
• Ensure you have a clear statement of your credit terms and send it to your customers who are applying for credit. Also make sure that this key information is on your order forms, invoices, and other financial documentation, as well as your website. Highlight your right to charge for late payments.
• Look thoroughly at a customer’s creditworthiness. A credit reference agency should give you the information you need to decide before granting credit. You can also take a look at identeco.co.uk for a credit facility for checking UK companies. An annual subscription of £79.95 provides unlimited credit checks as well as several other business services.
• Restrict the credit limit to an amount you can afford to finance and, in the worst case, to write off. Set low initial limits for new customers.
• Establish where to send invoices and whether they have any regular invoice payment dates.
• If possible, offer different payment options so customers feel they have flexibility.
• Invoice on time, every time and send monthly statements detailing outstanding balances with a reminder of payment terms and penalties.
• Fulfil orders correctly and obtain proof of delivery so you have a backup if a customer claims not receiving a product.
• Should a payment be late, chase in a professional, firm but friendly manner as soon as they are due. Never leave an outstanding invoice to become more and more overdue without actioning it.
• If late payment is looking likely and it will affect your cash flow dramatically, you could consider offering a discount for settlement, or money off their next order as an incentive to prompt them to pay.
• Regularly review customers' payment records and outstanding balances so you can identify problem payers.
• Monitor total credit outstanding in relation to turnover, and how quickly you are being paid, to check that your credit system is under control.
• When you find yourself in the position where you have debt(s) that you are not able to recover, and the customer is proving problematic it may be time to enlist the assistance of a debt collection agency. They will have the expertise to give the best chance of successfully recovering monies owed, whilst handling clients in a professional manner, which is especially important for valuable clients that you would consider still working with in the future.