Credit Control; the 80/20 rule.
Whether you have a web shop or render high quality coaching services, you need to get paid.
In the previous century competition was less heated as demand was kind of granted and the amount of players in the market was reasonably stable. Credit Control was not often embedded in the company’s processes.
Over the years, business management got more effective and the amount of players in the market grew excessively. Add to that globalization and the entrance of internet and social media and there you have it: competition.
It nowadays takes a much more lean approach on getting your money in. Therefore, credit control has become an essential part of running a successful business.
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There is no such thing as the ideal credit control approach.The best solution for your company could differ from the perfect solution for your neighbor’s business.
For instance, the number of bad debts you can afford depends on your margins but also on your financial backbone – is your money free to access or locked in your Working Capital. Too many losses in a short period can make your company go belly up. However, if you have very little to no bad debts, it might be that your policy is too aggressive and clients are walking to your competitors with a more soft approach. Every company must find its own balance.
The 80/20 rule applies here.
80% of your clients is happy and comfortable in doing business with you and will pay their invoice without a problem. You’re both in the comfort zone. The other 20% though needs a more tactical approach as, they are bound to stretch their payment terms with you. These are generally also the clients with the highest stake in your revenue. The stretching is not because they are unhappy with your product or service but simply because they see the benefits of keeping their cash as long as possible in their own bank account.
Attention is the key word here and this is where a credit control professional steps in. Calling or meeting your nonpaying client is essential. For a sales – or relationship manager to discuss unpaid amounts might affect the commercial business relationship and put it at stake. A subject matter expert is there for a better choice – let finance talk to finance because for a client to tell that they’re not paying an invoice in your face is far more difficult than to ignore a system generated email.
At last; there are also delinquent clients who are never going to pay – take your precautions for those – it is part of running a business.
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