Credit management

What is Credit management?

Credit Management is the process where goods and services that are sold on credit (i.e. paid for at a later date) are managed to ensure the debt is paid within an acceptable time period so that both the seller and buyer remain happy.  

What does this mean in practice?

If your business normally sells on monthly trade terms (payment on the 20th of the month, following the month of invoice) then payment on the 30th of the month might be quite acceptable.  However, if the account was paid three months later you might not be so happy.  There is always a happy medium that the "supplier" can live with and the "buyer" can meet.  Stopping credit on the 21st of the month can be counter productive and while your cash flow may be great, it may also result in a loss of sale with customers who can't always meet the 20th payment date (refer to the section Risk Management for pricing on risk versus reward).  The credit management process covers a number of areas and there is never a simple "fix all" formula that can be implemented overnight.

Question:  How long did it take for your debtors to blow out?  Did it take 6 months, 12 months, 18 months, years?  Well, to fix it is going to take time to "educate" your customers to pay sooner.  The "Wham Bang thank you Ma'm" may produce fast results but it might not be what you want long term.  I would far rather work a ledger quietly, doing 100 things 1% better and show consistent improvement over 6-12 months!

How do we do this?

We put in place industry best practices, find out what makes your particular ledger tick, what is normal in your industry and strive to consistenlty do better.