The ideal situation for any business is to sell their product or service and receive payment on or before delivery. No payment, no delivery. Simple. In reality however when in competition with similar operating businesses this is only feasible when every supplier does it and that in itself is not reality. Yet it is not sufficient to provide credit to your customers simply “because everyone else gives credit”. A company needs to evaluate what it must achieve from its credit sales – i.e. Increased Sales; Improved Profitability; New Customers; Increased Market Share. Remember, a business wants customers to come to it for the product first and then for its credit terms, not the other way round, though unfortunately it very often is that way.
It could be argued that Credit Control should be called Debtor Control because those that owe your business money are debtors not creditors! If you have an accounting background you already know this but persons from other backgrounds might not. For credit control and debtor management purposes it is important to understand the following simple definitions of Debtor, Creditor, Invoice, Statement and Adjustment Note: Debtor – A person or business who owes you money; Creditor – A person or business to whom your business owes money; Invoice – A piece of paper, or electronic representation, showing what has been bought, the amount due, payment date and ideally, on the reverse of the invoice (or if electronic as an appendix), a replication of your business’s terms of trade provided at the time of the customer being accepted by you as a credit customer; Statement – A piece of paper, or electronic representation, showing all invoices issued to a customer over a given period, usually a month. Their purpose is to enable your customer to reconcile their Payables records with your and stimulate prompt payment to you; Adjustment Note – Formerly known as a credit note, issued when an invoice is incorrect or if there is a problem or dispute requiring change to the original invoice. Source: Accounts Receivable Solutions (Australia) Pty Ltd
About 90% of small businesses that sell on credit terms say they cannot afford to employ someone full-time to chase payments, so the owners attempt to do the task themselves or get one of their untrained staff to try. The results are not usually very good and debts hang around getting older and harder to collect. Did you know that there is a 50% chance that you will never recover that debt which has aged beyond 180 days? Even if you consider yourself successful at getting your customers to pay, asking them for money in one breath and then trying to get new business from them in the next is a hard job. So, what do you do? You should use the services of an experienced and professional outsource credit controller, such as Accounts Receivable Solutions. No business is too small to benefit from such a service and it is cheaper than you might think. But perhaps more importantly it removes the stress and burden of doing the task yourself and your cash flow is improved dramatically. For an obligation free chat, give me, Adrian, a call on 0427 881 818 and learn how you can get paid painlessly.