No matter how good your Credit policy is, no matter how well written, no matter how many wonderful points it contains, until you make somebody responsible for its implementation it is a complete waste of time.
Your Credit Policy can be as lax as – “we will give credit to everybody” – if this is your policy be sure to have large bad debt provisions, because as word gets out that you are a soft touch more and more poor credit risks will beat a path to your door. This policy could be appropriate if you are at an early stage of growth where market share is the most important factor and you do not want any barriers to building a customer base or where you are enjoying a high margin that will more than cover and potential losses.
It can be as tight as – “We get a full credit report on every single customer, we demand management accounts for the last 12 months, we have to have the balance fully insured or tangible security in place for the full exposure – before we are prepared to grant any credit”. This approach will work where you have tight margins and cannot afford bad debt losses and need to be sure every sale will turn into cash in a short period of time.
More realistically is will be somewhere in between these two extremes. To be effective your policies must be worked out, discussed and implemented at an appropriate level with senior management endorsement. You have to be clear who your ideal customer is and what you have to do to get them, and then what you will do with them and for them when successful.
Have a simple check list of requirements and communicate early exactly how you do business, what they can expect from you and what you can expect from them. Make it as clear and simple as you can and be prepared to walk away from business that doesn’t fit into your business model.
The person who is responsible for ensuring payment is received from your customers is the best starting point; they will fully understand your business from the customer’s perspective and will know what is possible and how your customers will really react.
Start with a simple page and test it by applying it to the reality of existing customers, ask the question “what would this customer do if we did that?” If it looks as if it would suit the majority of your customers you are getting close to a working policy. If there are certain customers or groups of customers that the policy is not appropriate for you have two solutions either rewrite your policy or create a list of known and accepted exceptions.
If you have two aspects to your business say goods and service you could have a different set of policies for both e.g. “We offer 30 days credit on all service work and equipment supplied must be paid up front.”
Communications is the key to success here. Your policy must be workable and accepted by all. Start with a draft policy document talk to all interested parties and once all eventualities have been covered get senior management endorsement, this becomes the working document that has to be communicated to your customers on an ongoing basis by the relevant people, usually the sales staff are the ones who make the initial contact and should let every customer know – this is how we do business.
Then you should have regular KPI reports to make sure what is promised is delivered.
Declan Flood,
Cheif Executive,
Irish Credit Management Training,
121 Lower Baggot Street,
Dublin 2.
E: info@icmt.ie
W: http://www.icmt.ie/
P: 01 659 9466
F: 01 659 9401
Declan Flood FIICM, Founder and Chief Executive of Irish Credit Management Training is a, renowned trainer, international speaker and author with over 20 years hands on experience in Credit Control and Credit Management with major Irish & International Companies. He is a graduate of the IICM Education program and a Qualified Business Coach. He received his Qualification in Training & Development from National University of Ireland. He has been training in all aspects of credit management for many years, generating a sense of enthusiasm and urgency that has been experienced by all who have been through the training experience.