Credit management means collecting payments from customers as well as controlling the flow of credit. This function has been used by suppliers, manufacturers, whole-sellers, retailers, and banks to keep credit policies under control. Effective credit management means improvement in revenues and decrease in financial risk for the company.
It’s obvious that a good credit management ensures smooth flow of money from debtors to creditor, but should small-scale businesses have such a policy? And does hiring a professional debt collection service helps? This is the point of discussion for this post.
Importance of Credit Management Policy
Make it a rule of thumb that as soon as your employees exceed 10, you have to create a written set of instructions to control them and have a sound credit management policy for your business. It will help define the following:
- Rules of operation
- Stages of operation
- Sales process
Moreover, it will also clarify the responsibilities of each employee according to the business strategy.
You will see the impact right from the point of implementation. It helps reduce conflicts among workers as well as stakeholders of the company. Commercial aspect of business often cares less about the financial position of the buyers. On the other hand, your accountant and financial manager prioritizes risk management and cash flow analysis, and will have concerns over granting credit to customers.
If you have a sound credit management policy, it will help keep these two extremes work in coordination for the betterment of the company. The policy should be flexible enough to incorporate at which point you should look for a professional debt collector singapore agency for receiving dues.
Credit Management Policy and Sales Process
It will also help establish sales process with well-defined stages, of which debt collection and litigation phases are vital.
Smooth Cash Collection
You need to ensure your business does not suffer from late payments. You need to have structured and professionalized cash collection mechanism; otherwise, your risk management strategy will suffer. A sound collection strategy has following benefits:
- It improves your credibility as a seller
- It helps improve your cash flow
- It helps improve commercial relationship with suppliers and clients.
The debt recovery process
Your cash recovery process must be well defined. It is to ensure whatever you do, should be legal and your customers should not turn away from you. A strategy needs to be devised regarding phone calls, mails, emails and others. Moreover, the policy should be clear enough for the recovery service to follow. Know the tips and tricks in tracking your debts and how to pay them off simply, and of course legally., and of course legally.
As your sales department is involved in this activity, there needs to be a high level of coordination and understanding between the outsourced company and your sales representatives. The recovery process also specified late payment penalties, so that the customers can adhere and pay in timely manner.
Litigation phase begins when you failed to recover your dues from delinquent customers, even after sending reminders and notices. There are different legal options for the creditor depending the nature of the company and the types of customers:
Different means to recover dues include:
- Lawsuits from sellers
- Debt collection services
- Credit insurers