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

The Ultimate Guide to
Credit Management
in a post COVID world
By Declan Flood
1

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
2

Introduction
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.
3

• 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
4

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
buying.
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.
5

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.
6

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
basis.
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.
7

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
collect.
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.
8

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.
9

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
10

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
weeks.
11

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
better.
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
signature.
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.
12

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
13

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
yourself.
14

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
career.
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?
15

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
director!
16

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

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
so.
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.
18

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
for:
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
19

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.
20

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.
21

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
delivered
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.
22

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

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.
24

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
25

to fully understand what is going wrong and what you have to do to resolve
it.
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
enough.
26

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
themselves.
There are a number of misconceptions regarding Terms & Conditions
(T’s&C’s):
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.
27

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.
28

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?
29

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
customers?
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.
30

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.
31

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
profitability.
It is vital to your business and your relationships with your customers that
you get this one right.
32

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

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.
34

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
served.
• 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
order.
• 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.
35

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.
36

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
visitors.
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
37

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
service
• 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.
38

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.
39

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.
40

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
pocket.
8. The rep who was supposed to deliver the goods still has them in the
car.
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?
41

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?
42

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
43

really distort the profit figure you are reporting and must be verified and
corrected.
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.
44

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
45

• 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.
46

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
enough.
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.
47

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
allocated.
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
allowed.
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.
48

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.
49

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?
Pricing
Terms
Limits
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.
50

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
happen.
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
available
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
them
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
51

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
business.
52

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!!!
53

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.
54

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
to.
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
55

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!
56

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
properly.
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.
57

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.
58

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.
Say:
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
case.
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
59

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.
60

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
now.
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
business.
61

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.
62

Conclusion
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:
declan@thecreditcoach.ie
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.
63

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.
Website:
Email:
Address:
www.icmt.ie
declan@icmt.ie
121 Lower Baggot Street, Dublin 2, D02 FD45, Ireland
64