Our Services

Credit Control Service

Head of service Steven Docherty

Introduction to WJM’s Credit Control service
We strongly believe that putting a good credit control system in place is the most important thing you can do to improve the financial position of your business. Put simply, we define “credit control” as the process by which you recover money owed to you without having to raise court proceedings or incur lawyer’s costs.

In fact, if done well, you shouldn’t need us at all! The problem is that most businesses don’t do this well…

Some companies have very sophisticated cash flow systems, while some have nothing in place at all. The most successful companies tend to fall into the first category, whereas the companies which struggle with cash flow on a weekly and monthly basis tend to fall into the second category. We can provide advice and assistance to both categories, from providing basic credit control advice, all the way through to undertaking your credit control process for you.

An example might illustrate a common problem. You buy goods from a supplier, which you have to pay for within 30 days. You sell those goods to a customer. Your terms and conditions state that your customer has to pay you within 30 days. Your supplier has a good credit control process in place, and after 31 days starts chasing you for payment. You decide that, to avoid a court judgement against you (and so that your supplier continues to supply you with goods), you should pay out. Your own customer, however, does not pay for another 35 days, and in the meantime dodges your calls. During that period, you have paid out to your supplier but you don’t yet have the money in to cover that outlay. Your bank becomes concerned at your overdraft ... Well, you probably know what happens from here.

The point is this - your success depends on cash flowing into your business. Your financial security depends on you reducing the amount of time it takes for your customers to pay you. You need to have a system in place to ensure that problems with payment are identified early, and dealt with. If you do not have such a system in place, your business will be storing up problems for the not too distant future.

We can help. Follow the links on the right to find out how.


Advice on credit control
Why do I need a Credit Control policy?

It is common practice for businesses to sell goods and services on a credit basis. Businesses therefore often incur a risk by allowing the purchaser time in which to pay for goods and services supplied. To ensure that this risk is managed properly and minimised, businesses should operate an effective credit management policy.

A debtor is an asset to any business only if they pay, and an effective credit control policy will allow a business to easily determine how readily this asset can be converted into cash.

What should my Credit Control policy contain?

An effective credit control policy should deal with at least the following areas:-


Mechanisms for approving credit for new customers.

Mechanisms for determining credit ratings and terms for new customers.

Procedures for taking action against customers where sums due are not paid.


Credit Control policies should also incorporate criteria to allow the business to determine:-


The conditions of sale to be issued to customers. Businesses may wish to devise different conditions of sale to be issued depending on the risk involved with offering the customer credit.

Payment terms and conditions.

Interest payable to be applied to accounts which become overdue.

Details of any cash discounts.

Details of assessing which credit ratings should apply to customers.

Details of when accounts will be frozen and recovery action taken thereafter.

Details of the stage at which legal action should be raised against the debtor.

Whether or not credit data from external sources should be investigated and whether credit insurance should be taken out.


How do I assess my customer’s risk?

An effective credit control policy should incorporate a way to assess the customer’s ability to pay what is owed to you within their credit limit. When the customer’s credit risk has been assessed your business will be able to decide on the credit terms and limits to apply to them.

There are a number of ways to make sure that you evaluate correctly the risk your business is taking by offering the customer credit. Some examples of methods which can be used are:-


Carry out a credit check on your customer. You can follow the Equifax link below to gain access to a discounted credit checking service.

Ensure that your customer completes a credit account application form.

Arrange your credit terms only after you have received the credit report and credit application form back.

Send a letter to your customer setting out the terms and conditions.

Consider getting involved with credit circles in order to obtain information relating to a company’s credit status.


An effective credit control policy will also incorporate categories of risk which can be applied to customers depending on the results of the credit assessments. Some customers may be viewed as low risk, high risk or standard risk depending on the results.

What do I need to include in my terms and conditions of sale?

The main clauses in your terms and conditions of sale should include:-


When payment should be made.

Interest due to be paid on outstanding accounts.

Payment terms (credit may be offered for somewhere between 30 and 90 days depending on your business practices and the perceived risk with the particular customer).

Details of interest to be paid where accounts are not settled in time. Terms and conditions in relation to interest should be included in your general contractual terms and be held to be binding.


Why is my Sales Ledger important?

Your company’s Sales Ledger is important because it lists all of your sales which account for a significant proportion of your business assets. The purpose of effective credit control is to manage this asset properly. The Sales Ledger should therefore detail all invoices raised, details of all payments made against them as well as credit notes issued and any account write-offs. As well as the customer’s name and address a unique account reference number should also be used for each sales account.

Effective credit control policies should also include the keeping of individual customer files. These customer files should detail all status report and information obtained when the account was opened together with bank and trade references if these have been obtained.

All customer files should be kept up-to-date with details for example of any changes in terms and conditions.

All invoices should be issued at the earliest opportunity as the customer will not make any payment until such time as they receive the invoice. The customer file should also include statements of accounts. These are records of all transactions with the customer over a particular period of time. These should be issued at regular intervals and contain up-to-date and accurate information. They should include details of precisely what the customer owes to the business taking into account any credit notes, discounts available and cash received.

Where a credit limit has been set for a customer it is important for the business to make sure that any accounts outstanding are within this allocated credit limit. Your business must have a mechanism in place to alert it when a customer’s credit limit has been exceeded. Provided the business is aware of when credit limits are exceeded, appropriate action can be taken where necessary.

The Sales Ledger should also incorporate details of any invoices which are the subject of a dispute with the customer. It should be clear from the Sales Ledger which outstanding invoices are the subject of a dispute and which are not. Every effort should be made to resolve disputes quickly and courteously. If invoices which are the subject of a dispute are not handled with this particular care, the customer may decide to withhold all sums due whether or not they are themselves subject to a dispute.

Your business should have a clear credit policy available to management and to the sales force which covers the basis on which the company will offer credit and the methods by which outstanding monies due to the company will be pursued. Best practice would be to include this credit policy in a Credit Manual which would cover the following areas:-

How to assess customer’s credit risk.

How to open new accounts.

When to invoice new accounts.

How outstanding accounts will be collected.

Sample or style letters and documentation may also be included for example terms and conditions of credit and account opening application forms.

Details of when phone calls should be made in respect of outstanding accounts and when and in what circumstances personal visits to customer’s premises should be made for the purpose of perusing outstanding accounts.


Should I take up bank and trade references?

Trade References
There has been some debate over the value of certain trade references. If at all possible trade references should be obtained from major blue chip companies. Care should be taken to ensure that trade references are not coming from favoured business contacts and therefore may not accurately reflect the customer’s credit worthiness.

Bank References
Banks will provide an opinion on prospective customers based on their view of the customer’s account performance. Some replies you can expect from bank references are detailed below together with an explanation:-


1. Bank Reply - Undoubted.
Meaning - More or less what it says – certainly the best reference given.

2. Bank Reply - Respectable, considered good for your enquiry.
Meaning - Probably the most usual good reference.

3. Bank Reply - Private limited company considered good for your figure and purpose.
Meaning - Much the same as the above, with the added confirmation of limited company status.

4. Bank Reply - Respectable but unable to speak for your figure.
Meaning - Guarded, and the enquirer should be wary.

5. Bank Reply - Unable to speak for your enquiry.
Meaning - A bad reference: trade on a cash only basis.

6. Bank Reply - Figures higher than we expect to see.
Meaning - Best to proceed with further security only.

Other tips on effective Credit Control

Be logical in collecting accounts.
Accounts should be collected on a sensible basis to ensure a healthy cashflow. Particular attention should therefore be paid to the collection of larger amounts in priority to lesser sums. However it must be remembered that as the collection of lesser sums may be an easier task these should also be pursued on a regular basis.

Handle all disputes with care.

All disputes should have been resolved before telephone calls and letters are commenced. This should avoid stalling tactics on behalf of the customer such as requests for copy invoices and claims that the account has already been paid. Be sure that you can respond to any excuses offered by the debtor. For example where a debtor claims that a cheque is in the post this should be met with an enquiry as to when the cheque was sent and a date on which the debtor can expect further action to be taken if the cheque is not received.

Where a debtor says they have not paid the outstanding invoice because they are waiting themselves to be paid by their customer you should ask who the customer is and how much is due to be paid. This information is particularly important for Scottish businesses because sums due by third parties can be frozen where court actions are being raised. This remedy of arresting sums is available prior to the judgement being made. More information on Arrestments is available from our Credit Control Team.

Credit check your customers
The links below take you to Equifax and Experian, two of the world’s largest and best known credit checking companies. Their services can be used to credit check your customers whether they are individuals or other businesses.

Equifax
Experian

We can be your credit controller
With our years of experience in advising clients on recovering debts, and contracting with their customers, we have developed our credit controller service. The idea is that, instead of you employing a credit controller (and being responsible for their PAYE, pension, employment contracts etc), for an agreed fee you can ask us to do the job of credit controller for you.

We will manage your Sales Ledger, providing you with payment reports and outstanding invoice reports. If you also use our Midas Credit Management service, we will also chase your debtors for payment if they exceed your credit terms without paying. Our integrated debt collection court service will then be able to sue your debtor for payment if necessary. The service is completely integrated, because in most cases the same person will be the credit controller, and will progress recovery efforts for you.

We can handle large volumes of invoices. If they are all paid on time, you need pay no more than the fixed fee agreed with you in advance for our monitoring and reporting service.

Please contact Steven Docherty to discuss your requirements, and the costs to your business.

 

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