Credit control procedures differ from credit control policy in that the procedures is the implementation of the policy. For example, when something happen (a) is the response to that something.
Having a clear set of credit control procedures ensures that your credit control department runs smoothly. The following is a list where procedures should be thought about and written down they help to reduce the cost of credit.
Late payment
this is always the most obvious and important within any credit department. What will you company response to late payment be. This is a list of options:
- email customer – very quick to send a standard mail and ask when payment will be with you.
- use telephone to call customer – this is the most common method and yields the best results, however it is the most costly and takes the longest therefore it should not be used for small balances that are just overdue but kept for balances that will prove the most profitable.
- standard letters – most companies have a range of standard letters. The first standard letter should go out automatically if payment has not been received, this should be the most general letter, see credit control letters for more detail.
Credit note requested
it is important to have a clear who does what and approves what for the checking and issue of credit notes. If there is no clear procedure for credit note issue it is an area where clients will use the “waiting on credit note” to delay payment on an invoice, even if the credit note is only 1% or 2 % of the invoice value.
- have a written request for a credit note – do not let the client let you figure out what they want this will end up in the credit note being requested more than once.
- check and then double check the credit – two reasons. You are not a charity and you do not give credits unless they are due, sales are often hard to come by without giving them away. Second, and this is the most common, mistakes are made on credits note commonly, if the credit is not issued for the correct amount it will delay payment also it has to be journaled off the account and another created – this all costs time and money.
- when the credit note is raised it should have the details of the credit on it and the invoice number it refers to. The amount of credit notes I have seen that do not have the invoice number on it is frightening, and it makes it difficult to allocate when payment is received.
- the credit note should never be allocated against any other invoice – basic you think but it happens often.
The above is example of credit control procedures and highlights the difference between that and credit control policy. Take the time to write down all your procedures as it will payoff in the long run.
