It is no exaggeration to say that your credit control systems can make or break your company. Below you will find some useful tips on how you can set up systems and improve your credit control processes. At JTE we can train your appointed staff member in the best credit control techniques, or you can outsource the whole process to ourselves. Ring us to discuss your requirements.
Efficient credit controlling begins with an invoicing system that is designed to ensure payments are pre-sanctioned and received on time. This is achieved by re-designing a company’s invoicing procedure.
All invoices are sequenced, and sanction numbers are allocated based on agreements that are put in place with your customers’ accounts departments to ensure prompt payment.
Credit Control
It is very important to agree the sequence of invoices and payment terms with each customer and place those terms into a contractual agreement so both supplier and customer know exactly when payment should be made.
It is also advantageous to agree a designated payment code (sometimes referred to as a pre-authorisation code) to be attached to each invoice for an agreed period.
Always speak to the accounts manager/book keeper who oversees payment of the company’s invoices and ensure payment is pre-sanctioned by this person at the time the contract is entered into.
Invoicing
Invoices can be pre-arranged at a fixed fee for an agreed period or rendered on a variable basis.
Fixed fee invoices are usually based on an annual contract whereby a fixed amount is payable periodically for services rendered. For example, a monthly retainer or minimum quantity of a supply of goods at an agreed price. Such invoices should be pre- sanctioned and paid on a fixed date each month.
Variable charges arise when the invoice raised relates to the exact services or products supplied in that month and includes one off costs.
Example: 1
A PR agency often agrees a fixed retainer for each year divided by 12 monthly payments. The work is then allocated to one or more employees.
Once the retainer has been agreed who monitors the actual cost to the company, for providing the service to the client? What if the client wishes to release a new record or launch a new movie? Will the associated additional PR be included in the retainer or does this become a variable cost?
It is highly unlikely that the employee who has been allocated the work will consider whether the additional workload is correctly paid for by the retainer.
This employee will not be completing a time sheet, so what the company originally perceived to be a profitable contract could become a loss maker without the company realising it until it is too late.
Example 2
Many law firms will agree monthly retainers with their client. This may be to cover general legal advice available to employees of the client company or it may be for a specific job e.g. conveyancing.
What if the client suddenly gets embroiled in a litigation matter, will this be covered by the retainer?
Most law firms ask their fee earners to complete time sheets either in 6 minute or 15 minute allocations, this means that if a high volume of work is carried out for a client, the financial controller who analyses the time sheets will quickly be alerted to the fact that the work being carried out by the fee earner is far exceeding the agreed retainer and steps can be taken immediately before it impacts on the firms cashflow.
The two examples above highlight how working methods impact on cashflow and the importance of having very tight monitoring techniques and systems in place to get the best profitability from your employees.
Payment of invoices
How do you determine your credit terms?
Do you just use industry standards or have you considered what is most beneficial for the company.
How long should you give your customers to pay your invoices?
Many corporations provide large organisations or their best customers with longer payment terms but how does this impact on the company?
The answer to these questions alone can determine whether your business is profitable or loss making.
Credit control considerations
Do you have an allocated person to contact each customer after the invoice has been raised?
You should always check that the customer agrees with the invoice rendered and there is no dispute about either the work carried out or the amount billed.
A phone call can be invaluable because you have ascertained very quickly whether your customer has a problem with your invoice, and you have the opportunity to remedy the issue quickly and without stress.
Do you have an allocated person to monitor that the invoice is paid by the due date? and if not to ring and ask for payment to be made?
Many businesses think that once the invoice has been sent to the customer it will be paid at some stage in the future and they have no real system in place to monitor payment of those invoices.
There are other businesses that do employ a credit controller, but this employee is often an administrative assistant with no accountancy or legal experience, who has no real knowledge of how to set up a credit control department and does not like ringing companies and asking for payment.
Credit control is a job that can easily be outsourced but how should a company select an outsourcing provider? Does the outsourcer have the relevant experience, and can they advise on the whole credit control system or just chase outstanding invoices?
Are they based in the UK or some far flung place like the Philippines or India?
Will the outsourcer work under your company name?
JTE can manage the whole of your credit control system including debt collection, under the banner of your company name in a reliable and experienced way.
JTE Consultancy
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