How efficient is our credit control?
Revenue from sales is a core component of any business without which a business would not survive. However it is equally important that you collect your sales revenue on a timely basis. Is there a point of working so hard when a number of customers either don't pay or pay late?
Recently, I was finalising one client’s financial statements and noticed a fairly large number of bad debts. While discussing this with the client, I was told all the necessary steps were taken to reduce the bad debts including the small courts claim.
We are all aware of the usual reasons of bad debts. These can include:
- Customers did not receive the goods/services they were promised.
- Goods were dispatched but were never received by the customer.
- Customer is going through some financial troubles.
- Customer was not explained on our terms.
- A crucial paragraph was written in small print and no emphasis was given upon agreeing the terms.
The list could go on….
Now we may be aware of these, but are we taking the reasonable steps to minimise our bad debts? These are the precautions we should be taking:
- Are we aware of the risks the moment they became our customer?
- Did we run a credit check before we signed on a new customer?
- Are we reviewing our existing customers on regular basis?
- Do we have clear terms and conditions for all our customers? Are we explaining these clearly to our customers?
- Do we have a track record of order; dispatch/services provided, time record and a system to prove if the customer received what was promised?
- Do we have a system to ensure that all the sales are billed promptly?
Would we still have a big number of bad debts if we ran the credit check on the customer, and had a proper system to prove that the promised goods or services were dispatched and received by the customer? How about if the customer was invoiced and chased on the timely basis?
Does it work? Find out by implementing the system.
Hope you find this article useful. We are all here to learn so please do not hesitate to post your comments or provide your feedback.
Happy reading, Nasir Shaikh.
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