The Ultimate Guide to Credit Management in a post COVID world by Declan Flood

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The Ultimate Guide to

Credit Management

in a post COVID world

By Declan Flood


Table of Contents

Introduction ....................................................................................................................................... 3

Knowing the Importance of Your Credit Function ...................................................................... 5

Calculating the cost of granting credit and its implications. ...................................................... 7

Setting up New Accounts Correctly .............................................................................................. 9

Establishing credit terms & credit facilities ................................................................................ 10

Having Access to the best information available ....................................................................... 12

Developing contacts in your trade that you can trust ................................................................ 15

Knowing what security is available, what to look for and what to do with it. ......................... 17

Being able to analyse financial information correctly. ............................................................. 19

Understanding the current commercial position ........................................................................ 21

Seeing what is working in similar markets that you can apply to your business .................... 23

Creating excellent internal communications so all are working to the same agenda. .......... 25

Having complete and accurate Terms & Conditions that protect you. ................................... 27

Knowing your customers and what they want ........................................................................... 29

Clear payment terms that are both enforceable and enforced. ................................................. 31

Wonderful simple administration systems that insure a logical flow of information. ............ 33

Excellent external communications ............................................................................................. 35

Timely & accurate billing .............................................................................................................. 37

Proper documentation .................................................................................................................... 39

Excellent filing and document retrieval systems ....................................................................... 41

Detailed sales analysis ................................................................................................................... 43

Proper and timely statement delivery to customers who want them ....................................... 45

Integrated collection processes ..................................................................................................... 47

Proper record of calls made and action taken ............................................................................. 49

More Integrated collection processes .......................................................................................... 51

Having trained and professional staff contacting your customers on a regular basis. ............ 53

Proper focus on every contact. ...................................................................................................... 55

Simple escalation procedures ........................................................................................................ 57

Setting targets .................................................................................................................................. 59

Excellent Reporting ........................................................................................................................ 61

Conclusion ....................................................................................................................................... 63



The shut down over the last few weeks has presented us with a whole new

world that some businesses will emerge from and unfortunately some won’t.

We are faced with a dilemma: we have customers who already owe us money,

that they haven’t got to pay us and still they will need more goods on credit if

they are to open their doors. So what do we do? Do we continue to supply and

hope that things will improve in the future? Do we insist they pay the old

account in full before further goods can be supplied? Do we insist on cash up

front for future orders? Do we stop giving credit altogether? Do we give credit

to our customers and stop paying our suppliers? Do we use the generous offers

by Government and banks for low interest working capital loans?

While we are not able to see into the future, our experience of past recessions

has thought us a few lessons that we all need to learn from, so we can emerge

from this crisis stronger than ever before.

When people hear the words “Credit Management” or “Credit Control” they

often just think “debt collection” and while debt collection can be a very small

part of the process, there is a bigger picture that most businesses miss, and

that is the picture I would like to reveal to you in this guide.

Proper Credit Management is all about profitable business; it should be about

serving customers, supporting the sales function and finding a way to deliver

every order that will add to the businesses bottom line.

We have all become accustomed to the phrase “Social Distancing” In the new

world of business we will need to get closer to our customers than we ever

have been before and as I hope you will discover in the pages that follow

Credit Management could have a key role in achieving this.

Credit Management is about a lot more than just collecting the money that is

owed, it is about:

• Knowing the importance of the function.

• Calculating the cost of granting credit and its implications

• Setting up new accounts correctly.

• Establishing appropriate credit terms & credit facilities at the start and

on an ongoing basis.

• Having access to the very best information available.

• Developing contacts in your trade that you can trust

• Knowing what security is available, what to look for and what to do

with it.


• Being able to analyse financial information correctly.

• Understanding the current commercial position

• Seeing what is working in similar markets around the world that you

can apply to your business.

• Creating excellent internal communications so all are working to the

same agenda.

• Having complete and accurate Terms & Conditions that protect you.

• Knowing your customer and what they want

• Clear payment terms that are both enforceable and enforced.

• Wonderful simple straightforward administration systems that insure

a logical flow of information.

• Excellent external communications

• Timely & accurate billing

• Proper documentation

• Excellent filing and document retrieval systems

• Detailed sales analysis

• Proper and timely statement delivery to customers who want them

• Integrated collection processes

• Proper record of calls made and action taken

• Having trained and professional staff contacting your customers on a

regular basis.

• Proper focus on every contact.

• Simple escalation procedures

• Setting targets

• Excellent reporting

And that is just for starters… In the coming pages you will explore each of

these topics in more detail to help you manage your business effectively.

I am available to help you on an individual basis if you require advice on any

credit related issue please let me know.

Declan Flood,

The Credit Coach

Irish Credit Management Training

121 Lower Baggot Street

Dublin 2

Tel 087 244 7052

Email: Declan@thecreditcoach.ie


Knowing the Importance of Your Credit Function

In business everyone has to go right back to basics and the survival of most

businesses depends on the two vital functions of selling and getting paid for

what is sold, in full and on time.

You have to focus in equal measure on both. Companies that focus on

market share and getting sales at all costs and neglect their credit function

are doomed to failure.

To be successful you should look at our simple six step Active Credit

Management process to ensure your success that is summarised by the

acronym ACTIVE.

A is for Administration. Get your paperwork right, first time every time. If

you are invoicing your customers correctly it will have a knock on effect

throughout your business. Your customers will be happier in receiving

invoices that go through for payment easily. Queries and disputes are time

consuming and can damage your reputation, and cause delays in payment.

The acid test for a company supplying goods is contained in the accuracy

of the stock levels on the system. If you can believe what your system is

telling you, you will run a much more efficient business. Finally your

monthly sales analysis will accurately reflect your business and profitability

C is for Collections. Have targets, have properly trained and educated staff

performing the function. The excellent work done by ten sales people can

be undone by one bad credit controller. The purpose of collections has to

be to get the money in full and on time and keep the customer current and


T is for Terms and Conditions. Read yours – do they serve you? Are they

clear unambiguous and enforceable? Are the terms printed on the invoice

match the printed terms? If you supply goods, do you have retention of

title? Properly managed this section will lay the foundations for your future

success in the area.

I is for Integration. Everybody in the company should be working together to

achieve a common goal. The job of senior management is to set out the goal,

plan a route as to how it should be achieved, and ensure it is delivered. Credit

is not just a finance function – it is a team effort and everyone must pull

together to ensure all targets are met.


V is for Value. You need to add value to your business and you also need to

have a simple and consistent way to measure your performance every

month. Make sure you are focusing on what you have done and not on

what you haven’t done!

E is for Evaluation. You should have a clear and simple assessment system to

ensure your customers are in a position to pay their bills as they fall due, get

the required information, check out trade references, get judgment searches,

get company financial data, get help with your scoring models, study payment

patterns of existing customers, have a clear new account procedure to ensure

you always know the exact entity you are trading with. Anything less and you

are starting on the wrong foot.

In the coming pages we will explore each of these areas in greater depth to

give you a blueprint to improve your credit performance and your overall

business. If you need help in any particular area, feel free to contact me

directly. I am always happy to help.

Having a strong and focused credit function at the heart of your business will

improve every aspect of the entire business – far from being the anti-sales

squad or the sales prevention department, properly trained, educated and

focused credit professionals can enhance every aspect of your business from

customer selection, to customer retention, to accurate sales analysis and of

course the vital function of cash flow to keep the business moving. Knowing

the potential of your credit function, focusing on it and then doing it is the

simplest road to success in good times and bad.


Calculating the cost of granting credit and its implications.

Make no mistake about it granting credit is a costly business and one that

should be well thought out in advance. Some people think that because you

are in business there is an expectation to give credit and somewhere along

the way a figure of 30 days has emerged.

There is a simple rule – you should only give credit if it helps you to sell

more. If a potential customer wants to buy from you and is prepared to pay

up front – take the money, and make your systems simple enough to

facilitate this.

If you think that by granting credit you will make it easier for your

customers to buy from you and it will allow you to sell more at higher

margins then do it, if not, don’t!

The first cost of credit is your application form and the time put into

processing it, getting the required information and making a decision as to

how much you are prepared to give them and for how long.

Second is the cost of sending out invoices and statements on a monthly


Thirdly is the administration cost of following up with customers and

agreeing payment amounts and payment dates. Should you decide to go

down the legal route for recovery, not only do your costs increase but your

administration time increases significantly as well.

Fourthly there is the cost of money. The standard overdraft rate is 10 –

12% per annum, to make it simple call it 1% per month. Now look at your

Net Profit margin – whatever figure that is – that tells you how quickly the

cost of money erodes your profit completely e.g. if you are making a 4% net

profit – paying 1% per month for funds means that in four months’ time the

cost of money alone has eroded all your profits and from month 5 onwards

you are in fact losing money on that transaction. Because they appear in

different buckets in your accounts it is not always obvious. Even if you are

not on overdraft there will always be an opportunity cost implication – i.e.

what return you could have made on the money if you had it.


Late payment represents the greatest cost of credit; it can cost a business

as much as ten times the bad debt figure in any one year. This is one area

you really have to manage very tightly.

There is a simple table that shows the collectability of debts of a certain age.

If a debt is within terms you can expect to get between 99 and 100% of it. If

it goes 60 days beyond terms your chances of collection is down to 80%. If

it goes 180 days beyond terms this figure goes down to 50% and for 360

days and over you will probably only collect around 10% of that debt.

This rapid depreciation of your ledger is not all write offs, it is a combination

of write offs, discounts and “splitting the difference” if a debt is disputed and

goes back over a long time – the older the debt the more you will not


Finally there is the cost of bad debts – increasing in these times where we

expect the number of companies going into liquidation is set to increase – this

cost has to be taken into account at the outset and included in your overall

cost of giving credit.

I hope that knowledge of these five factors will increase your resolve to

collect what you are owed in full and on time, intelligently deploying

resources to maximise your profit, and putting a greater focus on the

contribution made by your credit person or team. I hope it will increase your

sense of urgency – knowing that left alone, your ledger will depreciate at a

rate of 1% every 4 days.

The good news is that there are ways to overcome this and these will be

discussed later.


Setting up New Accounts Correctly

The key here is to get it right from the start. You have to have a proper

account opening procedure that incorporates a proper New Account

Application Form, and details all the information you need at the start based

on the line of credit required and your overall exposure.

You should also document what information you require from every new

customer which could include:

1. Google search on the business name

2. Phone calls to given trade references

3. Agency reports from the large number of Information providers available

4. Check out business publications and local newspapers with the

business name to see if anything good or bad has been published

about them.

The two absolute essentials here are to get the correct legal name of the

business you are trading with and their proper contact details.

If the potential exposure is significant you should consider a site visit as part

of the criteria before the account is opened.

Every account should be properly categorised from a sales and credit

perspective and you should be able to look at industry sectors, and

geographical areas separately to build up a picture of the growth of your

business, knowing which areas are being most productive.

Every account should be assigned to the relevant sales person, sales

division, credit controller etc.

Finally, you should always consider your internal requirements. Who within

your business needs to know the account has been opened?

• Sales person responsible for the account

• Sales Manager

• Operations

• Distribution

• Marketing

• Finance

Getting it right at the start will make your life so much easier.


Establishing credit terms & credit facilities

At its simplest, credit is based on trust. The word “credit” comes from the

Latin verb credere which means to believe or to trust. Before you give credit

the four questions you have to ask are:

1. Will you sell more as a result of giving credit?

2. Do you trust them?

3. How much can you trust them with?

4. How long can you trust them for?

Will you sell more as a result of giving credit?

As simple as it sounds if the answer to this question is “yes” then I will

consider giving them credit, if the answer is “no” then I won’t. If they will

buy the same amount at the same profit margins with or without credit then

get paid up front every time. Each case has to stand on its own merit and

the decisions you make will impact on your whole business.

Do you trust them

There are so many factors to take into account here:

• The length of time they have been in business?

• The type of business they are in?

• The outlook for that industry segment?

• The character of the principals?

• The financial strength of the business?

• Is the business managed well?

• How they treat their current suppliers?

• How much credit they are looking for?

• How profitable is the business?

If you are satisfied they meet the criteria you have set and you have a

reasonable chance to recover any amount you are owed, and you are

comfortable doing business then proceed. If you have doubts, if the way

they do business concerns you, if the business is dropping dramatically or if

the business is growing too quickly these factors should influence your

decision. Information and the ability to understand and interpret the


information are your keys to success here. Set out a simple policy based on

amount – get company information, get trade references, get sales reports,

check them out fully before the first order is dispatched, then monitor all

new accounts more thoroughly for the first six months.

How much can you trust them with?

The best starting point here is to ask them how much credit they are looking

for per month. Then multiply it by your monthly terms +1. E.g. They are

looking for €10k per month and they will pay you at the end of the second

month i.e. 1 months credit (€10k X 2). The line of credit they require id

€20k. If your terms are 60 days then the line of credit you require for them

is €30k.(€10k X3)

In your searches and enquiries make sure they are good for these figures.

On an ongoing basis you can revise your own figures using a simple rule

where you check back over the account for the past twelve months and find

the highest balance that was cleared within terms and multiply that figure by

1.25 to establish a new line of credit for them. If they are good for €10k

then you can consider them good for €12.5k.

There are lots of ways to secure your position, which we will be showing you

in later editions.

How long can you trust them for?

The answer to this question is usually referred to as your terms. Avoid

phrases like 30 days or 60 days, they are far too vague. 30 days from what?

Order, dispatch, invoice, date of invoice, date of receipt of invoice, end of

month following invoice – specify clearly when payment is expected. 30 days

from date of invoice will work where there are very few invoices in the

month, End of month following invoice works better if there are multiple

invoices. You have to establish the industry norms and decide if you want to

use credit as a marketing tool to generate more business through granting

longer terms, if this is your approach, make sure you accurately cost the

financial implications of this extended credit and make sure your sales will

still be profitable as a result.

While this may seem like a complex procedure, your success will depend on

how well and how quickly you can evaluate the credit worthiness of every

potential customer and to make a decision within minutes not days or even



Having Access to the best information available

Information is the life blood of credit. There are two main sources of

information available to you, the information you can get from agencies/

information providers (external) and the information you have on your own

files (internal), which is often overlooked.

First of all you must have a top class Account Application form that asks all

the right questions that will clarify exactly who your customer is and how

they want to be served. You should get as much information as possible,

legal name, trading name and all relevant addresses: business address,

invoice address, delivery addresses, statement address etc. – never assume

they are all the same. Get as many contact names as you can: names of

buyer, accounts contacts, directors etc., and the more contacts you have the


The second part of the information you require is how they want to be

served – where to send your invoices? Do they require statements? Do they

use order numbers? Can they receive their invoices electronically? These

questions should appear on your application form.

The third part is to seek Trade references, bank references etc to ensure

they are people you would be happy to do business with.

Fourthly you should include your Terms & Conditions at this stage and get

them to sign they have received and accept them and in particular that they

agree to adhere to them. If you are selling goods your retention of title

clause should be clear and unambiguous and be printed in bold above their


There are a number of other items you may include on this form: Direct

Debit for variable amounts, Standing orders for fixed amounts, Credit Card

for smaller amounts.

This document must be kept and referenced at a later date if required.

In addition to the information you receive at the start, as soon as you start

trading you have a wealth of information on payment performance, value of

payments, trends in the business etc. This should be retained and used as

required to increase your understanding of the business.


Be careful with your use of information that is available online – they write

their own websites so this information should be treated as such.

Information on other sites e.g. Irish Times, Financial times etc. can be taken

a little more seriously, although we can’t always believe what we read in the

newspapers! Information received from the Companies Office and

information agencies, although there is a cost involved; tend to be more

reliable – if older.

Make sure you are making a decision on the most up to date information

available, basing a decision today on accounts that are 12 – 18 months old

may not be a good idea when you take into account how the world has

changed in this period.

I really believe that Stubbs Gazette is essential reading for everyone

involved in credit every week. To get the best out of it everyone in your

department and your sales staff should have access to the information

every week. It is a reliable indicator of businesses that are experiencing

difficulties and you can formulate your own policy on how you react to one

of your customers appearing in it based on the above variables and how

much is owed and to whom.

One other use of Stubbs Gazette that is often overlooked is to check out the

plaintiffs – if your customer is the plaintiff for a very large amount, could

there be a knock on effect to the survival of their business, if this money is

not paid? Your call.

At the outset and on an ongoing basis you should get the most up to date

financial and trading information you can. You should do a Judgment search

to see if they are not paying other suppliers, you should have bands of

customers and have requirements for each based on value e.g.:

€1 - €500 Completed application form alone is sufficient

€501 - €1,000 Application Form + 1 trade reference + Signed Direct Debit

€1,001 - €5,000 Application form + 2 trade references + Online search

€5,001 - €10,000 Application Form + 3 references + Bank reference +

Summary Report

€10.000 + Application Form + 4 references + Bank Reference + Full

report + Management accounts for last six months


The bands above are a guide only and the figures and information will vary

greatly from business to business and for different markets e.g. domestic and

export. The concept of having a grading system based on value is the main

lesson here; you should change the numbers and requirements to suit



Developing contacts in your trade that you can trust

Credit Management is, and always was, a people business. You have to

really know your customer and the more you know about them the better

the quality of the decisions you will make.

While we covered the sources of information in a previous chapter your best

source of information is through the people you know and trust. Having

friends in other companies with whom you can share information in

confidence is one of the best tools you can develop throughout your credit


We know there are laws on libel and slander, there are very strict guidelines

in Data protection and you must be up to speed with these, you still can

share information on companies, their payment performance and factual

information on how they do business and still remain within the law.

Obtaining Trade references is a great start. You are given two, three or even

four names of people you can contact about the potential client; you get to

choose how many you ask for on your own Account Application form.

Select the ones you will contact carefully: No point in speaking to relations

or family – they will always say good things about them. No point in ringing

your opposition, you are merely alerting them to the fact one of their

customers are looking to move away from them. No point in ringing a vital

supplier e.g. for a publican ringing suppliers like Guinness or the ESB will

yield little information – of course they will pay them, if they didn’t they

would be out of business.

Once you get the contact information ring them ask great questions and

offer to return the compliment at a later stage. The type of questions you

should ask:

How long do you know them?

Do they pay on time?

Who do they deal with?

Approximate credit levels i.e. hundreds or tens of thousands?

Is there anything else you should know?


Building of contacts in this way will be a valuable source of contacts that will

stand to you in the long term.

I would have to mention there are a number of Credit Associations and

Institutes of Credit Management – organisations specifically for credit

professionals who you get to meet and talk to on a regular basis and share

war stories and experiences. You will learn from the formal training and

education offerings and you will also learn from the other participants and

what you learn informally at the various conferences and events can be a

valuable source of information on a day to day basis.

Finally if you really want to know about a company, direct your questions to

the correct level within that company. The operations staff, store men,

receptionists and salesmen will share for more current and relevant

information than any of the directors who are at times removed or want to

be removed from the daily reality.

Within your own organisation you will find out more about a customer from

your van drivers and sales staff than you will from your Finance Manager or



Knowing what security is available, what to look for and what to do with


There are times when a credit decision is marginal. The dilemma of whether

you should take a chance on a particular customer when the financial and

trading position is far from ideal. You know that you will only make money

from the orders you deliver and you cannot make money from the orders

you refuse so you should always find a way to deliver every order, and the

profit margins on the product should dictate the level of risk you are

prepared to accept.

If the margins are high you can take a greater chance because failures will

have less of an impact on your overall bottom line. The lower your margins

the more thoroughly you have to credit check your potential customers.

There a number of ways you can reduce your exposure:

Credit Terms

The shorter your terms the lower your exposure. If you are unsure about

a customer there are a number of different levels of terms you can apply

to the account e.g. Cash in advance, cash on delivery, cheque on

delivery, credit card on delivery, weekly credit, load over load – where

they pay for the last order before the next one is shipped. End of month,

end of month following etc.

Assign a specific line of credit

Every customer should have a specific amount applied to their account

that represents the level of credit you are comfortable extending to them.

This should be reviewed on a regular basis in line with every order


Retention of title

If you supply goods you must have a valid retention of title clause built

into your terms & condition that is communicated to them in advance of

any invoice. If there are problems at times this is the only chance you

have to recover anything from a customer that has failed.


Personal Guarantee

If you are dealing with a company with a low financial worth or are newly

incorporated you can ask for a personal guarantee from one or more of

the Directors. In the event of the company failing the director will be

personally liable for the debts they have with you. Of course the

guarantee is only as good as the person giving it, make sure they have

the means to honour the guarantee even if the company fails e.g. shares

in other companies, property etc.

Parent Company Guarantee

If the company is part of a group you can look to get a parent company

guarantee that means the parent will be liable for the debts should the

subsidiary fail.

Bank Guarantee

If the business needs credit from you and you are unsure about their

ability to meet their commitments you can ask for a guarantee from their

banks so the bank will make the payment should the company fail to do


Charge on an asset

If the company has an asset of value that the finance has been cleared on

you can look for a charge over the asset that should be registered – this

will give you some comfort and will improve your position. In the event of

a liquidator or receiver being appointed you will be higher up the list of

creditors to be paid and can rely on the specific asset before the rest of

the unsecured creditors are paid.


Being able to analyse financial information correctly.

To make informed credit decisions you must be able to read and understand

any financial information that is presented to you. There are courses on Risk

Assessment available and it also forms an important part of the Diploma in

Credit Management course so all I can do in one chapter is give you a flavor

of what you should know, what you should look for and why.

There are three documents you should concern yourself with:

1. The Income Statement (Trading Profit & Loss Account) – deals with the

past – Trading is all about buying & selling and the expenses

associated with that activity. This document will show you how well the

business is being run.

2. The Statement of Financial Position (Balance Sheet) – deals with the

present – it presents a snap shot at a moment in time (the last day of

the financial year) that details everything the business owns and

everything they owe at that point in time.

3. The Cash Flow Statement - deals with the future - it shows the

opening bank position, what cash is expected in and what expenditure

is due to be paid and when. Accurate cash flow forecasting is easier to

do than you may imagine and gives comfort to all when it is being

delivered every month.

Some models use one or two of the above documents, I believe to give

yourself an accurate picture you must use all three. When assessing the

numbers avoid looking at each in absolute terms, if the answer is 31 and

you ask is that good? I don’t know; it depends on the question! It also

depends on where you were last month and the month before and it

depends on how you are scoring in relation to others in your industry. So

look at the numbers and more importantly look at the trends, are they

getting better or are they getting worse?

In assessing financial information there are three main things I am looking


1. Solvency – their ability to pay their bills as they fall due. The answer

to this lies in the balance sheet – divide the total current assets by the

total current liabilities if your answer is greater than one that is good

news, if it is less than 1 that is bad news and could indicate they could

have problems meeting their commitments as they fall due.

2. Profitability – Is the business making money? The more profitable the

business the greater its prospects irrespective of economic conditions.

You will see the profit as the bottom line on the Income Statement

(P&L account).

3. One of the old indicators was concerned with growth – most


businesses will contract this year so we need a new measure here.

4. Efficiency – how well is the business being run, how old are their

debtors? Have creditors been paid to terms? Is their stock holding

policy correct? What about cash management?

There are also the four C’s of credit to be taken into account namely:

Character: JP Morgan said “I will do business with anyone as long as

they are honest”

Capacity – Their ability to generate income

Capital – the overall value of the business

Conditions – in the market beyond the business

Bringing in credit professionals – people, who are trained, educated and

practice excellent credit management, or taking your own staff to these

levels is of vital importance in these more challenging times, to make sure

you are making the right decisions that will bring the highest profits..

Sensible Credit Risk Assessment, is not about risk avoidance, nor is it about

walking away from profitable business – it is about walking a fine line

between risk and reward and delivering improved systems and procedures

that fit these more challenging times.


Understanding the current commercial position

In times of boom there is a tendency to give out credit in a free and easy

manner to fuel the growth in sales. The seeds of most companies’ current

financial problems were sown in the good times when controls and good

practice were suspended in favor of continued uncontrolled growth.

The opposite is also true that when things turn downwards, credit becomes

tighter the attitude to credit changes, when companies and financial

institutions lose their appetite for granting credit which can have a negative

impact on the business.

While widely accepted that this is the reality, both approaches are wrong.

You have to continue to grant credit in good times and bad, and you should

always have some vetting of your customers and potential customers to

ensure you will be paid in full and on time.

There are a number of essentials:

1. Have a full and proper account application procedure

2. Ask the right questions

3. Check out all relevant references

4. Perform financial checks consistent with the level of credit sought.

5. Write to your new customer, welcoming them and letting them

know exactly what they can expect from your service and what you

expect in return.

6. Apply a specific line of credit to every account and build in a

constant review mechanism to allow for growth

7. Manage all new accounts carefully

8. Keep the lines of communication open at all times.

Now more than ever, customers are looking for value for money and your

survival in business depends on your ability to deliver it. You need to

understand that the expectation of value for money does not necessarily

mean working for nothing or cutting your margins to unsustainable levels,

the purpose of business is to provide goods and services at a profit and that

profit is only realized when the payment is received.

In difficult times credit can be used as a marketing tool if done intelligently,

properly costed and managed correctly you can grow your existing customer

base and your sales by providing the goods they want at a competitive price

and excellent service.


Here is where some businesses fall down, they build in all their quality

systems around their products and service and fail to include the

administrative process.

There are some essentials around administration:

1. Invoices:

a. Must be produced on a timely basis

b. Must be sent to the correct person or department

c. They should include the customer’s order number if applicable

d. They should be easy to read and understand,

e. they must have a reference to the delivery or service docket

f. The price and quantity must reflect what was agreed and


g. Should be clear

h. Clear VAT analysis

i. Your bank details should be included

2. Statements

a. Should be posted in the first week of the month

b. Should include a remittance slip with their account number to be

returned with payment

c. Should not show excessive ageing

d. All credit balances should be investigated before they are posted

3. Reminder Letters

a. Should be properly worded

b. Sent only to selected customers

It is estimated that as much as 25% of the cost of doing business is for

redoing stuff. There is a cost in delivering goods and sending out an invoice

– if you deliver the wrong goods, you still have all the costs then you have

the additional cost of collecting the wrong goods, issuing a credit note and

then delivering the correct goods and sending out a correct invoice. Get it

right first time – every time. It is estimated that as much as 50% of your

overdue balances are there because you have done something wrong

yourself or your customer believes that you have. Your ability to keep your

customers happy applies more to administration than anything else and this

simple fact is often missed by businesses.

Implement even some of the changes you have learned here and you will

see a real difference, if you have any questions or require help with any

credit related issues we are happy to help.


Seeing what is working in similar markets that you can apply to your


If we want to excel at anything, the easiest way is to find someone who is

doing it at a level of excellence we are happy with and copy what they are


To that end we need to look at other countries and industries and see what

we can integrate into our own systems and procedures that will help us.

In Europe, the Nordic countries lead the way in terms of prompt payment.

So, what do they do differently?

1. They set clear and short credit terms

The average credit granted in the Nordic’s is 19 days, this is achieved through

negotiating shorter payment terms, giving incentives through cash discounts

for paying early and enforcing those terms through clear and focused

collection effort.

2. They charge interest on all overdue accounts.

In fact they are so used to this concept that if they are late paying they will

automatically calculate the interest themselves and add it to the payment.

3. They pass accounts to 3 rd parties sooner

The longer you wait to pass the account to a collection agency the less

money you will collect in the end. Build faster timescales into your

procedures, and lower your own acceptance of late payments that can

cripple your business. It is reported by Intrum Justitia in their 2019

European Payment Report that Bad Debt losses in 2019 were up to 2.31%

from 1.69% in 2018 and that figure will be considerably higher in 2020 – a

truly staggering figure and 25% of all company failures were as a direct

result of late payment or non-payment of invoices resulting in the loss of

hundreds of thousands of jobs. The sooner you act the sooner you will see

the results.

4. They get the customer to pay for all collection activity


This is one that may require a change in legislation but for the moment it

should be included in your terms & conditions that the customer will be

expected to pay for any collection activity associated with the collection of

overdue accounts. These amounts, together with interest and administration

fees should be added to the final amount to be collected.


5. They only write two letters – one reminder, one final notice.

The more letters you write the less effective they become. Reduce the

number of letters, send them sooner and send out the message to all your

customers that getting paid is important to you and you will take whatever

action is necessary to ensure collection.

6. They have highly trained and educated staff

There is no substitute to having highly trained and educated staff who are

professional, focused and motivated. Who know what they are doing and

perform consistently at a level of excellence, with due regard for the need

for excellent customer service at every level. Confidence plays a huge part in

every area of business, it is particularly important in Credit.

7. They use Letters of Credit

Learn ways to reduce your exposure to foreign or significant buyers, using

simple letters of credit is an underutilised way to achieve this. While the

concept is simple, the truth is that most are completed incorrectly that can

make them invalid. When dealing with Asian and African customers you

must explore this option. If you opt for this payment method, make sure you

get help from the experts.

8. They know and understand their Credit Scores

In America every person knows their own credit score. It is a vital part of

who they are and what credit will be available to them and it will also

determine the cost of that credit. In Ireland we are way behind, but as with

everything else we will catch up eventually

9. Evaluation

Finally, evaluate what you are doing on a daily basis, make sure you

understand from day to day and even from call to call, what is working and

what is not. Then adjust your behaviour to focus on what is working and

simply phase out what is not.


Creating excellent internal communications so all are working to the

same agenda.

The credit department is well placed at the centre of your organisation to

ensure your internal communication processes are working. Every time there

is a breakdown it will show up in the form of a customer query or an unpaid

invoice. Rather than being viewed as a problem, every issue should be seen

as an opportunity to review what was done or in most cases what hasn’t

been done and you can identify what changes need to be put in place to

ensure that this never happens again.

Customer contacts and queries must be viewed in a positive light everyone

in your organisation must be bought into the idea of keeping your customers

happy. This is why every single instance and every single query must be

taken seriously and responded to quickly, whether it is justified or not. Your

unjustified queries came about by a miscommunication somewhere, and even

these should be investigated thoroughly and you should communicate with

your customer the result of your findings and you should explain how the

query has been dealt with, and if the result is not as they were expecting

extra care should be taken.

If you are in a service business you should encourage the service providers

within your organisation to be aware of your billing cycles and every invoice

should be expected and agreed in advance, especially if you are billing on a

stage payment basis.

If you are supplying goods the invoice should be raised on the basis of what

was delivered, not on what was dispatched, and if there was a short

delivery, you should check with your customer if they still require the goods

if they were left short on an order.

Everyone in your organisation must play their part in delivering excellence

from the sales rep to the store man, from the marketing executive to the

account manager, everyone should be brought through your administration

procedures right at the start, you must explain exactly what is expected and

when, and exactly what they must do at every stage. Failure to deliver on

this will cause untold problems for you and will damage your reputation in

the market.

You should keep a query log and this should be discussed with all the

relevant people on a weekly basis, you should have a credit note analysis to

understand what is going wrong, you should log your customer calls,

particularly complaints, not because you want to focus on the negative, but


to fully understand what is going wrong and what you have to do to resolve


Every overdue amount on your ledger is there for a reason; a properly

trained and motivated credit team will get to the bottom of every single

issue and use it as a learning tool for the future.

Reports should be concise and geared for the audience that is going to read

and action them, you must get Board approval and buy in and it is the job of

the credit team to explain the importance of this vital function to everyone.

In today’s competitive market anything short of excellence is not good



Having complete and accurate Terms & Conditions that protect you.

Most people don’t seriously consider their Terms & Conditions until there

is a major problem then they go through the small print hoping there is

something there that will solve the problem they are having and in most

cases they are disappointed because more often than not, they find that

their own terms & conditions protect the customer more than


There are a number of misconceptions regarding Terms & Conditions


When you talk about terms it usually refers to the length of time you are

prepared to extend credit to your customers. Beware of terms like “30

days” as clear as they might seem they are nearly impossible to enforce,

because it is too vague, is it 30 days from date of order, delivery,

invoice, receipt of invoice or end of month following invoice? Unless you

specify you will think it is the shortest and your customer will think it is

the longest and you have created a situation that could lead to disputes

with you customers. Be clear, 28 days from date of invoice – will work if

there are only one invoice in a month, end of month following invoice is

better when there are multiple invoices. There is no law that states you

have to give 30 day’s credit so negotiate, weekly accounts, accounts to

be paid by the 7 th of the month following or the 15 th or the 21 st are

easier to enforce and everyone is looking at the same information.

You must review your published Terms and Conditions, where did they

come from? Did you get legal advice or did you rob them from someone

else? If it is the later, and most are derived this way, read them

thoroughly to make sure what they contain and that they are really

applicable to your business.

Putting your Terms & Conditions on the back of your invoices is not good

enough alone. By definition an invoice is a post contractual document and

you cannot introduce your terms after the contract has been entered into.

You have to make them aware in advance, best of all at the time of

signing the contract or when they apply for a new credit account make

sure they sign to confirm they have received a copy of your terms &

conditions and agree to abide by them.


Items that should be included in your Terms & Conditions:

1. General Terms

2. Orders

3. Service levels

4. Pricing Policy

5. Payment requirements

6. Interest Payments

7. Delivery

8. Warranties

9. Insurance

10. Complaints

11. Product Recall

12. Product withdrawal

13. Arbitration Clause (optional)

14. Jurisdiction

15. General Liability

16. Limitation of Liability

17. Indemnity

18. Force Majeure

19. Retention of Title

20. Penalty clause

21. Intellectual Property Rights

22. Termination

23. Storage

24. Waiver

25. Assignment

26. International Sales

This list is not exhaustive and should include or exclude items depending

on your business. Remember you get to write them so you have to make

sure they are designed to serve you and to minimise the number of

disputes with your customers.


Knowing your customers and what they want

One of the fundamentals of doing business has to be to know your customer

and it is your job to find out exactly what they want and you success will

come down to your ability to deliver exactly what they want at a reasonable

price while meeting or exceeding their expectations.

So many business people make the mistake of focusing on what they are

offering rather than what the customer wants, this mistake is at the root of

almost every business failure. To run a successful business you must be

flexible enough to alter your offering in line with changing market conditions

and the economic realities. While it is essential to map out a direction for your

business it is equally essential you keep reviewing it and make the necessary

alterations on an ongoing basis.

Most businesses overlook their credit function’s ability to delivering this,

here we set out some ways you can make it better:

1. Your New Account Application Form is a perfect opportunity to ask your

customer the questions that are important to you. I prefer to use the

phrase “New Customer Information Form” where you get to ask the

questions that are relevant to you. Do you have such a form? Do you

really know your customer from the information they provide? Does

the information provided form the basis of your internal credit

assessment of the customer? Does the form set out clearly how they

would like to be served? If you answered “No” to any of these

questions perhaps you should review your mechanism for selecting

new customers.

2. Your Credit Controllers or the person you have entrusted with the

important task of obtaining payment on a timely basis, is in contact

with your customer more often than your sales staff, they have more

information than you might think on every credit customer you have.

Do you know the questions to ask? Do you know the reports you

should develop to maximise the effectiveness of this information?

3. Do your sales staff, your credit staff and your delivery staff or service

providers meet on a regular basis to discuss the issues your customers

are having with a clear agenda as to how you can improve your

customers experience? If not you could be missing out on some

wonderful opportunities.

4. Do you sales staff and your credit staff meet your key customers to

make sure they are happy doing business with you and do they

discover new ways to serve them better?

5. Administration plays a very important role in the relationship with your

customer – do you put enough attention on it?


6. When a customer shows signs of financial problems do you allow the

Credit people handle it or have you an integrated approach involving

others within your business to find a way of continuing to deal with

them and reducing exposure at the same time?

7. Do you check every payment coming in every morning to make sure

you really know who your customer is? Do you keep copies of cheques?

8. Do you have an Information provider who keeps you up to date with

all the information that is being filed by your key and high risk


9. Do you read the relevant business publications to keep up to date with

ongoing developments in the market and with each of your customers?

10. Do you have your own internal information sheet to gather

information from every person in your own company that is in contact

with customers?

I hope by answering the above questions honestly it will help your business

to become more competitive with the customers that you want to

encourage, and act as an early warning system for the ones you should be

pulling away from.


Clear payment terms that are both enforceable and enforced.

One of the secrets of excellent Credit Management is to be taken seriously.

To be truly successful, getting paid has to be important to you and you have

to communicate that importance to your customers. If they believe payment

is not really important to you, you will find yourself at the bottom of their

priority list.

One of the best ways to achieve this is to have clear terms that are clearly

communicated. At the point of making the sale you should explain exactly

how you do business, when they can expect the goods or services to be

delivered and the standards they can expect. You need to explain your

invoicing procedures and exactly when you expect to receive payment.

Having terms like “30 days” are not good enough as it can lead to confusion

and they are not clear. Worse still is when I ask people what their terms are

and they reply “well our terms are 30 days but nobody takes them

seriously”. If you don’t, nobody else will.

Some people are of the opinion that because you are in business you have

to give credit, this is not the case. You should only give credit if it helps you

to sell more and your terms should be as short as possible without

interfering with your overall competitiveness.

It you can get away with cash in advance – do it. If you can get people to

pay up front before you supply the goods and service that is the best

possible situation for you. Before you say that is unrealistic think, you pay

for flights, for concert tickets, for books on Amazon in advance and it does

not cause you a second thought, because these suppliers have done a great

job to educate their customers as to how they do business. Do it if you can

and do it whenever you can.

Second best is “cash on delivery” this has to mean exactly what is says and

if the cash is not available the goods are not delivered. Most of the problem

accounts in some businesses started out as cash sales that were never

collected and a problem is born. If you say something mean it and follow

through with your promises.

If they require time to pay, why not agree 7 days, 14 days or even 21 days?

Be sure you are clear and be sure they understand you. If it has to be 30

days, is it 30 days from date of order, delivery, invoice or even end of month

following invoice? If it is end of month, be clear “you should pay us at the

end of August for all the goods we invoice in July” and then at the end of

August make the call to make sure it is delivered.


Waiting for a month to send an invoice and waiting two more before you

look for payment will send out the signals that the payment is not really

important to you and your customers will act accordingly.

The clearer you are and the better you are at communicating this message

through every single person in your company to every person in your

customers company will increase your success, and your cash flow and your


It is vital to your business and your relationships with your customers that

you get this one right.


Wonderful simple administration systems that insure a logical flow of


Truth is that excellent Credit Management is simple, the more

complicated you make it the more chances you have to mess things up.

Follow these simple steps to ensure your success.

1. Have a simple New Account Opening procedure. Make sure you

are asking all the right questions and get all the required


2. Include all details on the customer master file including all

required addresses, contact details, pricing information, agreed

terms. Make sure all other departments’ requirements are


3. Have well designed delivery dockets and service dockets that are

clear and complete. Make sure everyone is signed by the

customer at the time and filed carefully.

4. Invoice as soon as you can after the goods have been delivered

or the service has been provided – every day you wait reduces

your chances of ever getting paid.

5. Post and allocate your cash every day and check your bank

statement every single day

6. Follow up relentlessly, starting with the largest balances.

7. Send your statements on the first working day of every month.

8. Investigate every credit note thoroughly – make sure you solve

the underlying problems constantly.

9. Automate everything you can as early as you can.

10. Keep everyone in the business up to date with all relevant

contacts, comments and opportunities.

Sounds easy, the simple fact is that most businesses don’t follow this simple

10 point plan, and end up with growing debtors’ balances, reduced cash flow

and make life difficult for themselves.

Map out your own processes on paper; ask yourself “why am I doing this?”

If there is a valid reason – keep doing it, if not, stop. The very worst reason

for doing something is because you have always done it. If you keep doing

what you have always done, you will keep getting what you have always got

– if you want to improve you will have to change.

Having trained, educated and commercially focused credit staff can make a

huge difference to your business. Their attitude and approach will define

your success in the market.


Giving credit to all comers is irresponsible and cannot be allowed to

continue. Withholding credit is also wrong; the task of your credit team

should always be to find a way to deliver every order as quickly as possible.


Excellent external communications

It is easy for credit to become an in house, bask office function that

spends most of its time inward looking. Certainly those credit

departments that report into Finance tend to be more inward looking

than most.

It is important to remind you now, and for you to remind yourself

constantly that to be successful you business has to be outward looking.

The purpose of the business is to serve the customer and to ensure they

are kept happy at all times.

In the boom times, sales people became order takers and credit people

became administrators. That is no longer viable and everyone now has to

work harder than ever before to maintain and grow their business.

When it comes to Excellent External Communications you should

consider the following points:

• Proper New Account Application form that asks the relevant

questions to establishes exactly how the customer wants to be


• Do they use order numbers?

• Are the invoices and statements sent to the same address?

• Do they require statements?

• Who are all the relevant contacts?

• What are their direct dial phone numbers?

• Your pricing policy and structure should be explained by trained

salespeople to all your customers at the time of placing the first


• Your discount structures should be clear, simple and understood by

all concerned.

• Invoices should be sent as soon as possible after the goods have

been delivered or the service provided.

• All invoices must be correct, accurate and complete.

• You should build multiple contacts with each key customer at every

level within your organisation and theirs.

The purpose of every business is to get and keep customers; it is to provide

a level of service, second to none at a reasonable price that makes your

offering so far ahead of everyone else that ensures you have no competition

in the market.


Keeping customers current and buying is the main focus of every

commercially focused credit team and this is not an event or a series of

events, it is a mindset and a commitment to excellence at every step of the

way. It is not about catchphrases or glib comments about the importance of

customers, it is about being fully committed to serving every customer to

the very best of your ability at every level and every single person in your

organisation has to be committed to excellence in everything you do.

To deliver at this level of excellence consistently you have to put the

resources and time into your top priorities – and to be truly successful your

priority has to be your customers and delivering excellent communications

with them from start to finish.


Timely & accurate billing

You would be amazed at the amount of money lost every year due to

errors in billing. In extreme cases, goods are supplied and services are

provided that are not billed at all. In more cases incorrect or incomplete

invoices are sent to customers.

As a minimum you should match your service or delivery dockets to your

invoices and retain a file of uninvoiced dockets for review on a regular

basis, daily preferably but at least once a week.

If you are selling stock the acid test of the accuracy of your billing is the

accuracy of your stock take. Stock should be checked constantly to make

absolutely sure that the stock the system says you have is actually

there. If there are constant discrepancies you must take action and cost

your stock losses after every stock count. If the value is significant, the

frequency of your stock takes should increase.

If you are doing an annual stock take and the variances are significant,

complete a stick take every quarter until you are happy the variances

are minimal and explainable then you can go back to half yearly and

when that is working back to once a year. If there are still big losses the

stock take should be completed monthly or perhaps on high value items

– every week. Get your timings right for this and make sure you

understand exactly what available stock on your system really means.

If you are showing shortages either customers are receiving goods they

are not being billed for, you are booking in receipts from your supplier

that are not being received or your stock is been taken by your staff or


If you are showing overs this could indicate your customers are being

billed for goods they have not received.

If there is a combination of overs and shorts this could suggest that you

are booking out one product and invoicing another. The fact you have

not been alerted to this issue could also indicate you are undercharging

for this product – if you were overcharging you certainly would hear

about it!

You may well ask is this an guide on stock control or Credit? The fact is

they are all interrelated and accuracy in one will lead to accuracy in the

others. Your business needs to be minded if you are to survive and


prosper in these difficult times and taking a holistic view is the only way

to really make a difference.

The following checklist should help with your invoicing:

• Full and proper invoicing address

• Contact name of the person who ordered or received the goods or


• Your customers order number (if required)

• Delivery address where the goods or service were delivered

• Clear product descriptions, quantity and prices

• Make sure the quantity invoiced matches the quantity delivered

• Make sure the prices and discounts are absolutely correct.

• VAT analysis

• Invoice date and credit terms

• Payment due date

• Total due in the bottom right hand corner

• Simple white background to make it easier to copy and fax a copy

• Attractive lay out printed on slightly coloured and quality paper.

• Similar lay out to your service and delivery dockets to make it

easy for them to match them together.

Most importantly send your invoice as quickly as you can after the service

has been completed or the goods have been delivered – the longer you wait

the greater the chance you will never get paid.


Proper documentation

The purpose of documentation is threefold:

1. It ensures proper internal & external communications

2. For Controls

3. Regulatory requirements

As a credit manager, you will be familiar with all sorts of documentation and

will almost instinctively know how to deal with it. Spare a thought for those

for whom documentation is either a mystery or a real challenge. To ensure

you have accurate information you have a responsibility to make things as

easy as possible for everyone else.

If you have forms to be filled in by sales people – keep it to a minimum and

fill in as many fields as you can, and if it is possible to remove the

paperwork from sales staff completely in favor of email, or even their

preferred method of communication – the phone.

Why not have someone in the office filling in the forms for your sales people

who simply phone in and explain what deal they have done. Sales people

should sell and any obstacles to their selling should be removed. The best

sales people tend to be the worst administrators, so instead of giving out

about how badly they do a job they hate – why not get someone else to do it

for them?

If you are checking stock levels and need reports from warehouse staff,

rather than getting them to do complex reports that could take ages print off

stock take sheets complete with part number, description etc., so they only

have to enter the number counted on the sheet. The simpler you make it the

more accurate the information you will receive.

The more you play to others strengths the better they will respond to you

and if they find giving you information easy they are more likely to do it in a

timely manner, if it is difficult and time consuming they are more likely to

put it on the long finger.

When it comes to internal or external communications it is best to put

yourself in the position of the person receiving the information, it will look

different from that angle and the better you are at doing it the better a

communicator you will be.


Credit Notes and Journals must be documented, signed off and approved at

the appropriate level. There is no substitute for this and if it seems long

winded it is still the best way to control possible profit drains. The

profitability of your business is the most important thing of all – make no

apologies for protecting this.

Finally on the regulatory area, have a clear and written paper retention

policy, if you invoice on paper you must keep your copy on paper for

revenue, there are documents you have to keep for a year, six years and

longer, make sure you know the rules and abide by them.


Excellent filing and document retrieval systems

When we get caught up in complicated credit management systems

structures, strategies and metrics. When we are looking at risk

categorisation, collection methodology, smart provisioning and scorecard

capabilities for loss prediction and the vast array of software packages that

are available to deliver complex information intelligently and workable on a

day to day basis, sometimes the simple basics are forgotten and cast aside

as too simple or too mundane to deserve your attention as a busy manager

or business owner.

Forget the basics at your peril.

I invite you right back down to earth to run a number of tests on your systems

to see really how good they are. Are you ready?

Do you file your delivery dockets or service dockets in numerical order?

(Whether electronically or in paper format) If you don’t you should. If you do

pick a week – the week before last as an example and check for absolute

number sequence completeness. Get the number of the first docket that was

printed on Monday morning, get the number of the last docket you printed

on Friday evening and check that you have every single one in between.

If even one docket is missing this could be because:

1. the customer never got the goods

2. The customer got the goods but were never invoiced

3. Stores lost the docket before the delivery was made

4. Stores lost the docket after the delivery was made

5. The printer jammed and the docket never printed and your

customer never got their goods

6. The printer jammed the docket never printed but the goods were

delivered anyway

7. The rep who delivered the goods still has the docket in their shirt


8. The rep who was supposed to deliver the goods still has them in the


9. The boss was to drop off the goods on the way home

10. They were in such a hurry they couldn’t wait for the docket

And there could be many more reasons and here is the sting. No matter

what the reason there can only be one loser and that is you.

Look back at the list and work out for yourself the financial implications of

each of these occurrences. Don’t tell me “Oh that couldn’t happen here”. If

the docket is missing where is it? What happened to it? Where is the stock?


What about the customer? What about your sales? What about the integrity

of your margin figures? Is it any wonder you are having queries? Guess

what, if you are not checking this on a regular basis and you are having

problems, you only have yourself to blame.

Simple as this exercise sounds I would love if you did it and I’d love to get

your feedback on how effective it was for your business. Good Luck.

Another simple rule of thumb is that you should be able to retrieve and send

any customer a copy of an invoice or a copy of a credit note or a copy of a

delivery docket or a copy of a statement either by email or electronically

before you hang up the phone at the time they requested it. Anything less

and you are handing your customers the excuse they need not to pay you.

Can you afford this luxury?


Detailed sales analysis

There are a number of ways to verify the accuracy of your billing. The

first is the most obvious it is seen in the number of queries you receive

from your customers. If there are shortages, damages, picking errors,

billing errors, pricing errors you will discover these as soon as you talk to

your customer. Even if they don’t let you know immediately, thy will let

you know as soon as payment is due or when you make the call asking

for the money. As per previous chapters these should be individually

investigated, fixed correctly, communicated to all involved and your

procedure amended to ensure this particular mistake will not be made

again. Your mission here is to eliminate incorrect invoices completely.

The second verification method is to check your stock levels on a regular

basis, if the system stock matches your physical stock you know all is ok.

If there are discrepancies you have to investigate and resolve.

The third verification is by producing detailed and timely sales analysis.

Ideally you should look at sales on a weekly basis if the volumes are high

and perhaps monthly is the values are low. You should look at margins

by product and by customer on a period by period basis. Look at each

one and make sure they are within your chosen range. If profit is

important to you, and it should be, then your margin for every product

and every customer has to be the base that you work from.

If you margin is too low:

• Are your reps giving your customers too good a deal?

• Are you paying your suppliers too much?

• Have you an invoicing problem?

• Have you a credit note problem?

If the margin is too high:

• Are you overcharging your customers?

• Have you an invoicing problem?

• Have you a credit note problem?

You really should verify this on a regular basis. One of the main causes

for problems often lies in reason codes for credit notes, by definition

some are stock adjusting and some are not. If a product is returned, the

full value of the credit notes comes off your sales and the profit element

comes out of your bottom line. If you put through a pricing credit note

the full value comes off your bottom line. Miscoding credit notes can


really distort the profit figure you are reporting and must be verified and


If you are still having problems in this regard look at your credit and

reinvoices and make sure they are being treated correctly.

To ensure total accuracy you must adopt this three prong approach,

anything else is incomplete.


Proper and timely statement delivery to customers who want them

One mistake a number of Companies make is to decide unilaterally how they

do business. One of these areas is in sending out monthly statements to

customers, some companies send them out every month, some Companies

don’t. To answer the question which is correct, the simple answer is neither.

Some Businesses only pay on statement and if that is the case they should

receive their statement every month to facilitate payment, other companies

only pay the invoices that are approved and on their system, in this instance

sending them a statement is a waste of time and money.

You should ask your customers at the start which they would prefer, and

even if you have been dealing with a customer for a long time, a question

you should incorporate into your next conversation is “do you want

statements?” then update your Master file accordingly.

From a payment perspective, I would advise the use of statements, it is

verification that your own records are correct and match those of your

supplier. I only pay on receipt of statement.

In my time as Credit Manager I have received loads of duplicate payments

from customers where two copies of the invoice were received and both

were paid. I even had situations when I sent out a statement showing a

credit balance a third payment was received; in these days when money is

tight I am sure it is less likely. These duplicate payments would not have

been made if the customer used statements. I am sure you have seen credit

balances on accounts when the credit was never taken, whether the credit

was raised in error or was not received by the customer is unknown, the fact

is, if I pay on invoice, I will pay the next invoice in full. If I wait for a

statement the credit will be showing so I will pay the lower amount.

Other tips for successful statements:

• Open item are better than balance forward

• You should show the cash received within the month

• Statements should be posted on the first working day of every month

• All cash received up to the time you print your statements should be

entered and allocated.

• Avoid excessive ageing on the bottom; it only alerts your customers

that lots of your customers are not paying on time.

• State your terms clearly


• Hand written notes can be very effective

• Avoid rubber stamps with crying men on their knees – it projects the

wrong image of your business.

• You should include the direct line phone number for the accounts

department to avoid multiple handling of calls.

As with all your business communications look for ways to automate and

change to electronic methods if possible and accepted by your customers.

Make sure you present a professional image at all times. Make sure you

review all your statements before you send them out in the post, sending

zero balances because cash wasn’t allocated just looks silly, as does sending

statements for .04c. Spelling mistakes and non capitalisation of names and

addresses looks unprofessional and should be corrected as soon as you

notice them.


Integrated collection processes

For some companies the collection process involves printing out the latest

aged debtor reports and making calls to each overdue account with

increasing severity depending on the age of the debt. In some cases the

credit controller even writes the details of each call on the space provided on

the ledger. Then next month the exact same thing happens.

The traditional three part training program for new collectors consists of “Here

is the ledger, here is the phone, ring them”

The grief collectors get from customers is only surpassed by the grief they

get from their sales staff. The tightrope between getting paid and keeping

the customer is often unclear and often breeched.

In modern and competitive business this approach is simply not good


All the relevant information on customers both the master file data that

includes name, address, phone number, pricing details, reps assigned to the

account, credit terms and limits etc. combined with the ledger information

that includes invoices, credit notes, payments and journals has to be

brought together automatically into a single system. This could be a credit

management software package or even a well-constructed spreadsheet.

There has to be a permanent record of all calls made, all promises received

and all queries logged. If possible this should be linked to a diary and

reminder system to prompt the collector of what action needs to be taken

and when.

You need to set out a clear credit policy, whether you are in consumer or

trade credit of exactly what happens when. The following is just an example

of what the policy relating to collections could look like it is not a template –

each business is different and each of your customers

need to be treated properly which will involve understanding on your part.

7 days before the month end a list of all due and overdue customers are

sent to the reps clarifying what must be collected before the month end.

5 days before the month end – Top 20 customers contacted to make sure

they have all their invoices, all their queries have been dealt with and you

agree the value of the payment and the date, time and method.


3 days before the month end a printout of all the cash accounts is printed

out to make sure the balance is zero for the month end reports.

2 days before the month end a printout of all unallocated cash is printed for

the credit controller to make sure every penny is properly allocated before

the reports are run.

The day before the month end the Direct Debits are sent to the bank, the

cash is entered and allocated and as many confirmation calls are made to

make sure the money will be in tomorrow.

The day of the month end all the payments are collected, entered and


The first working day of the month, cash received is dated the last day of the

previous month and allocated. All statements should be printed, reviewed

and posted to your customers. All debtor reports are printed at the same

time – and while the reports are being printed no postings should be


The second working day a list of all unpaid accounts is distributed to the

relevant reps and people within the organization and a full debtors report is

distributed to the senior management of the company.

The third working day all balances below a stated amount get an e mail or

text message requesting payment.

The seventh day the overdue customers below a stated amount receive a

well worded letter.

During all this time promises are recorded and followed up on a timely basis.

If all your collection work is in hand the middle of the month should be

reserved for reviewing lines of credit, credit exposures and implementing

action plans to reduce exposure to an acceptable level depending on the

individual customer.

As stated earlier this is only a suggestion but should give you some structure

to manage your collections in an orderly and effective manner.


Proper record of calls made and action taken

It is essential that a permanent record is kept of every call made, what was

said on the call, exactly what was agreed and a follow up date to confirm

that the agreed action really happened.

If a call is made or received and all the information detailed above is not

received then the time was completely wasted. Each day should provide a

building block to build into the total result you are looking to achieve. As well

as making monthly targets it is a good idea to set longer term targets to

provide a roadmap of where you are going.

(It is a good idea to frame your targets even in an aspirational way for

example: our debtor days are currently at 77, by the end of the year we

want to get them below 67. This type of target comes with a health warning

it could have an impact on your sales and growth if you only measure your

success in terms of DSO alone.

A better way of setting long term goals would be: we currently have €x in

the bank, at the end of the year we want to have all our creditors paid in full

and still have €y in the account. The later is a better form of target because

the first is one dimensional while the second is all encompassing for your

business and everyone will have to work together to achieve the result.)

The records of individual calls will become your best source of information to

determine the credit worthiness of each of your customers. If there is a

history of broken promises or if a customer is getting harder to contact this

could be an indicator that they are experiencing cash flow difficulties. If they

never had account queries and suddenly they are having lots of them, either

you are not delivering what you should or they are looking for an excuse to

delay payments either way this trend has to be investigated. To the trained

collector there are very few surprises and each customer acts in a

predictable way, it is your job to know what these trends are and take the

appropriate action at the appropriate time.

The challenge is to ensure your records are accurate and kept up to date on

a regular basis. You should constantly update and question:

Moving address

New Contact:

1. Make sure your records are maintained

2. Are they moving to bigger or smaller premises?

3. Why?

1. If there is high staff turnover it could tell a story

about the business.


2. If directors and senior management are leaving

suddenly, this too could be telling you something

3. If this is a regular customer and you didn’t know the

previous person was leaving, what does that say about the

depth of your relationship with them?




Should always reflect what has been agreed.

If longer terms were agreed, who signed them off, why

were longer terms granted. Could there be a problem?

Credit Limits or as we prefer to call them Lines of Credit

should be reviewed regularly.

Unallocated Cash If you don’t know what your customers are paying, find out!

Follow up on the exact day, date and time you say you will, your

Professionalism and the fact that getting paid is important to you and

you are serious about what you say and you take what they say

seriously as well can be an important factor in getting paid on time

and in full.


More Integrated collection processes

When it comes to collecting what you are owed, you cannot afford the

luxury of performing this function in a haphazard way. You cannot have

a person spending part of their day or week or even month to ring

customers anytime cash flow becomes a critical issue for your business.

You cannot have manual systems where information is on two or three

different locations and you spend a large chunk of your time looking for

stuff. You cannot have vague due dates, no time to deal with queries or

disputes and expect money to materialise by magic – that will never


Now that we know what we don’t want let’s turn it on its head and define

what we do want.

1. We want clear correct and up to date customer information readily


2. We need a clear plan of campaign for each category of customer.

3. We need to define who we contact, when we should contact then, how

often we need to make contact, and how we are going to contact


4. We need a process flow from start to finish detailing what needs to be

done and how best to automate the parts of the process and how best

to use the time of the key people we have within our organisations.

5. We need a clear cash flow forecast linked into our sales budgets that

sets out what needs to be collected from whom and when.

6. We need to look at all available technology: Cloud based computing, e

mails, faxes, letters, predic1tive diallers, workflow management

systems, Skype, Zoom, conference calls, call logging, following up on

promises in a timely manner, text messaging and other appropriate

methods of contacting our target audience.

7. We need to set he correct times to maximise our contact ratio.

Monday morning will not be as good a time to speak to consumers as

a Tuesday evening. The days of 9 to 5 are gone, we need to be

available to our customers when we can contact most of them.

8. We need a consistent effort throughout the collection cycle the

contacts that are made at the start are as important as the ones at

the end.

9. We need to document the time frame we will use to seek outside

help, and clearly define what services are required at every point in

the system.

10. When we pass the account to our legal team, we need visibility

and speed in dealing with every single case


Without telling you exactly what to do I hope that intelligently reading

this section will help you set out the framework for your whole collection

process. With careful monitoring and management, your weaker areas

will become visible and you can create new action plans to deal with the

ones that will give you the greatest return.

In times of great difficulty comes great opportunity, I hope you will see

the opportunities that are available to you and you use your intelligence

to maximise your results is this vital and often overlooked area of



Having trained and professional staff contacting your customers on a

regular basis.

I know when you read the title of this section you could be forgiven for

dismissing it as an ad for the services we at Irish Credit Management

Training offer – I will do my best to retain the style and give you as much

information I can and keep the adverts to a minimum.

If you are to project a professional image to your customers you must

ensure that all customer facing personnel are fully trained on how to deal

with your very important customers, in case you haven’t guessed – every

customer is important! They will form an image of your company from how

they are treated by the frontline person they spoke to – if they were

professional and helpful, your company is “professional and helpful” – if they

were treated badly they might make a complaint, in reality only about 1 in

20 bothers to complain the other 19 simply don’t come back.

Unfortunately the reality is worse than just going quietly away, they will

recount the story of their bad experience every time your companies name

is mentioned and they have an audience to listen.

So far the frontline staff referred to, comprise customer service, receptionist,

sales, service, stores etc. and of course Credit.

One caustic, unmotivated credit controller can undo the good of 10 top

salespeople – in an instant.

You have to make sure, your collection staff must:

1. Have the right attitude

2. Focus on getting Paid – not on the person you are engaging with

3. Be friendly, polite, respectful and an unshakeable resolve to get the

required result.

4. Be target driven and have clear targets of what has do be achieved,

by whom and when.

5. “Know what they are talking about” – give product information,

systems information, procedures information and any other

information that is required by the customer.

6. Care about the customer and the company that is employing them.

7. Find someone else quickly if you find you are unable to satisfy their

needs – sometimes it only takes a different voice, explaining things a

different way that really gets through to a customer.

8. Know that the customer is always right!!!


Finally make sure you take note of the last three words in the title of this

section, these three words alone backed up with the information above will

increase your effectiveness – the more often you make good calls the

greater the results you will achieve. Guaranteed – every time.


Proper focus on every contact.

Anyone who has attended one of our training courses, or heard me

speak at a conference or meeting will be aware of the importance I

attach to “Focus”.

“We get what we focus on” is the universal law that I live by every single

day and I do my best to explain it to my audiences as simply as I can.

“We get what we focus on” – before we go any further, do you accept

the statement? Can you see that everything you have or have not in

your life right now is a direct result of what you focused on, whether it is

stuff you want or stuff you don’t?

“We get what we focus on” – all of the time. Sometimes we are so close

to our own lives we have difficulty seeing it. If you want to learn more

about this topic, which is outside the scope of this guide, then feel free

to contact me directly, in the meantime let’s accept it and move on.

If we know, we get what we focus on, we have to be very careful to only

focus on the things we want to happen. For if we focus on what we don’t

want, and we get what we focus on… then we will get what we don’t

want and why would you do that?

One of the greatest mistakes made by collectors is: phoning customers

about their overdue account. “Why is that a mistake?”, “we do it all the

time!” now stop and ask “in that statement – what are we focusing on?

We are focusing on the overdue account! Is that what we want? No.

Then why focus on it?

Some people say they are chasing payment. If they are chasing, there is

only one thing the customer can do, and what do you think that is?

Some people get upset by the behaviour of the people they are talking


In every one of the situations listed above can you see that the person

engaged in the collection process is focusing on the wrong thing? What

they should be focusing on is the money! They should be focusing on

timely payment, not on the overdue debt. They should be focusing on

getting the required result and not on the behaviour.

Your success in collections will increase tenfold if you and all around you

focus your complete attention on the required outcome all the time. It is


easier said than done and will take years of practice, to dispel our inbuilt

negativity despite how positive we like to think we are.

Of all the content I have written, this simple message has the power to

transform everything you do if you give it your very best shot. The

challenge is to do it!


Simple escalation procedures

As well as having one collection method assigned to every single account

you have on your ledger, you must also assign a clear escalation procedure

to every single account as well, just in case the original contact fails to

produce the required result.

The escalation should depend on the amount outstanding and the age of the

debt. The simple rule here is “sooner is better than later”.

Categorise your accounts into high, low and medium value. Then categorise

them again into high, medium and low risk, and set out a grid that you will

follow for collections. For low value you could have an automatic well worded

letter sequence, for high value you could use a combination of telephone

calls, personal calls, either by Credit or Sales staff, making sure every

account has a backup plan, first we will do this and then we will do that.

You can also involve others in the process, you can outsource your credit

function to a reputable company, you could outsource your debt collection at

a specific value at a specific date, and stick to it.

To be truly successful you have to keep changing what you do and when.

Customers learn how you operate and will always find a way of getting the

most out of the terms you offer, so after three or four months change the

cycle and implement the new system. By keeping accurate records of what

you are doing, when you do it, and how you do it, you will see trends

emerging so you will see which approaches work best in your industry.

For trade customers the fax is now a good way to communicate, as it has

gone out of fashion with mass communicators to is ironically better for

collections. Text messaging is working well with consumers, when handled


The better your understanding of your customers and the better your

analysis of the data, the quicker you will find what really works for you.

If you are dealing with small balances and SME or consumers, the power of

automated payments through Direct Debit or Credit Card payments should

not be underestimated.

By looking intelligently at your ledger and stepping up the pressure on your

customers to pay promptly, and having a backup plan will increase your

results exponentially.


As always the advice is for your benefit and up to you to use it, the only rule

is to mix and match your different methods. If you send a letter and it

doesn’t get a response, there is not much point sending another letter!

Perhaps sending a 3 rd Party letter will be more effective? Perhaps sending the

account legal will have the desired effect, in some cases it could be throwing

good money after bad, so choose wisely.

Stay smart, stay vigilant, stay in control, the alternative is poor cash flow

and financial problems for yourself.


Setting targets

It always amazes me when I ask companies “do you have monthly cash

collection targets?” the number that say “No”.

We have gone through the steps to excellent credit control, if you take even

some of these on board you will notice the difference, and even if you haven’t

got around to it yet, that’s ok too. The sooner you begin to take this function

more seriously, the sooner you will see the results.

This is a quick and simple way to ensure success. Your targets should be set

as a combination of three things:

1. Your credit terms

2. Your previous months sales

3. How quickly you aim to achieve perfection.


1. Your credit terms state that payment is due on the 28 th day of the

month following invoice

2. You sold €120,000 last month (including VAT)

3. You have €160,000 overdue, and feel to go for perfection too soon

would be too big a shock for your customers. If you could get all your

accounts within terms over the next eight months that would be great.

Your cash collection target for the month would be €140,000. This is made

up of the full figure of the previous month’s sales, which has to be achieved

to stay where you are. And 1/8 th of the overdue balance, because you have

decided to clear the overdue balance over 8 months i.e. an extra €20,000 a

month for the next 8 months would ensure you get to where you want to be.

This figure should be on a graph, on a wall, and be front and centre for

everyone involved with the collection process. They should always start with

the highest amount and work out which customers have to be collected to

hit the target. This target becomes the driver for the function, and all

activity is generated from it, and not the other way around as is often the


Another benefit of setting clear and achievable (with a stretch) targets is

that they tend to be really motivational, staff who know what they have to

do, how they have to do it and exactly when they have to do it by, brings a

clarity to the function that most credit controllers will find rewarding. Of


course, this is not for everyone if you know how much you need to pay the

bills and would prefer to make the collection process someone else’s

problem, talk to us and we will present a number of options as to how you

should tackle your credit & collections in a professional way.

Anyone who knows me will know that the starting point for any journey or

any task is asking the question “What do I want?” As soon as you have an

answer to that question, the only other one is “How?” “How are we going to

achieve the result we want?”

Sounds simple, I know, most of the biggest problems facing business have

simple solutions, often we become our own worst enemies by making things

too complicated.


Excellent Reporting

Every month, businesses waste a great opportunity when preparing

various reports. In some cases they are merely a statement of what has

happened, when it would be more beneficial to have an action document,

detailing what has to happen as a result of what has happened up to


When reporting on your credit function, you should always report on the

positives: cash collected, new accounts opened, disputes resolved. You

should never focus on the negatives e.g. overdue debt, DSO’s, Provisions

and Bad Debts. These last three are valid measures when taken in

context but should not be the sole method of calculating success.

Every balance you are owed must have an action associated with it

which is assigned to a person with a due date.

The following information should be extracted and actioned:

• Maximum exposure to every customer

• Methods of reducing and eliminating unwanted exposure

• Details on disputes

• Key customers

• Customers with credit ratings

• Cash collection targets

• Reasons for credit notes issued and proposed changes to eliminate

a reoccurrence.

You need to know exactly what you have to do to get you from where

you are to where you want to go. Setting out budgets is only one half

the story, the second, which is the more important half sets out exactly

how you are going to achieve the results.

Successful organisations are results based. When measuring any task there

are two possible ways to measure – the first is to measure the inputs – what

has to go in to make a situation work, the second is measuring outputs – the

results achieved.

When you make the change from measuring inputs, which is what most

companies are doing, to measuring outputs – the tangible, quantifiable

results that were achieved you will make a step change for your



The focus of every business should be profitable sales, what are you

doing to make sure everyone in your company is bought into this

concept? What are you doing yourself?

Remember a sale is only a sale when it is paid for. Are your actions

consistent with this simple statement? If you are paying commission on

orders received and delivered irrespective of payments received you

may be sending out the wrong message.

Review what you are doing and how you are doing it and always make

sure your actions will generate the required result.

Particularly with reporting there is a temptation to keep doing what you

have always done, that is not good enough in the current competitive

market, the only reason to do anything is because it will bring you closer

to what you want to achieve.



I hope you have found this Guide on Credit Management informative and

useful. I hope you will benefit from implementing some or all of the

recommendations. Even if you implement one single change as a result of

what you have read that makes a difference to your bottom line then the

exercise has been worthwhile for both of us.

I love to hear your stories, your experiences and most of all your successes.

I would really appreciate if you could share them with me my email is:


The world will recover from our current crisis, it will take time and we will

emerge into a new world. The challenges that you face will be made easier

by looking at the power of your credit function to deliver so much more for

your business. Involve your credit people when major business decisions are

being made, they are closer to your customers than anyone else in your

business and they will know exactly what your customers’ requirements are

and what you need to do not only to deliver on customer satisfaction, in

these competitive times, you should always aim for customer delight, and

you will do this by delivering excellence in every aspect of your business.

Finally, to answer the group of questions posed in the introduction to this

guide: So what do we do? Do we continue to supply and hope that things

will improve in the future? Do we insist they pay the old account in full

before further goods can be supplied? Do we insist on cash up front for

future orders? Do we stop giving credit altogether? Do we give credit to our

customers and stop paying our suppliers? Do we use the generous offers by

Government and banks for low interest working capital loans?

The answer is….it depends! You will have to offer greater flexibility, you

want to retain the loyal established customers and work closely with them

to help you both trade out of the current difficulties, this may involve

restructuring your credit terms while you do. You will look at new customers

with caution, and understand the additional risk you are incurring and weigh

that against the potential rewards and your own ability to manage your

exposure to the possibility of losses.

By implementing the systems and procedures outlined in this guide, you will

improve your business, your cash flow and your profitability.


The Ultimate Guide to Credit Management – in a post COVID world

was written by Declan Flood, The Credit Coach and Chief Executive of

International Credit Management Training – world renowned providers of

Education and Training in all areas of Credit Management.






121 Lower Baggot Street, Dublin 2, D02 FD45, Ireland


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