Enhancing Business Operations through Credit Control Management

Credit control management services are critical to a company’s accounting and finance function and directly impact its financial health. Simply put, credit control ensures that the payment terms extended to a new customer are based on their sound financial health and ability to make the payment on time. 

Companies depend on the four Cs of credit management to exercise stringent and enforceable credit control. These are essential four parameters that help evaluate the creditworthiness of the customer. The inability to correctly size up the customer’s financial capability can be bad news for your business, resulting in payment default or a financial loss.  

Let’s Understand These 4 Cs Better 

1) Character 

No, ‘character’ doesn’t mean whether the person is likable or not, but it focuses on the financial character of the person, specifically their credit history. Here’s an example – The cost-of-living crisis has seen an uptick in Buy Now Pay Later (BNPL) payment products, with almost 38% of survey participants (from amongst 3000 workers surveyed) saying they use such products and another 15% saying they have plans to use it. Now, think about it for a second. 

How would a financial services provider determine whether a person has the creditworthiness required to be eligible for such products? The answer lies in going through the prospective borrower’s track record of debt repayments. You are evaluating the financial character of this person, and can do so by going through the credit report of this person generated by either of the three credit bureaus, including TransUnion, Equifax, or Experian. The character is also defined by the collection accounts and bankruptcies, information that is again available through credit reports. 

Typically, the information in the credit report enables companies to work out a credit score, which decides whether the customer gets credit and the payment terms; customers with a good credit score get attractive payment terms, and others might not get the same terms. 

2) Capacity 

Capacity, is the prospective buyer’s capacity to pay on time. It is an important metric, because more often than not, when customers are buying on credit, the amount is at the higher end of the scale.  Evaluating the customer’s capacity involves mapping the income to the customer’s recurring debts. The debt-to-income, or DTI ratio, helps the company decide whether good credit terms should be extended to prospective customers. A lower DTI can ensure better payment terms to the customer and vice versa. 

3) Capital/Cashflow 

From the perspective of ‘capital’ you must consider the amount of money paid upfront and the remaining payment. If the capital contribution decent, the chances of default are reduced proportionately. 

A business must also look at the credit perspective from the ‘cash flow’ angle. How do they generate cash, and what repayment terms do they offer their own customers? If the business has customers who pay after 90 days and your payment requirement is 30 days, you might have a problem. In such cases, you must check whether the business has a line of credit with a bank. 

You can ask for income statements or balance sheets to understand their business’s financial health. How will this help? If the company is in sound financial health, you can offer competitive payment terms. The whole idea is to check whether they can fulfill their payment obligations. 

Unlock financial stability for your business. Read our ultimate guide to creating and implementing effective credit policies now! 

4) Conditions 

If you do not follow a standardised credit control management process, there is a chance that you will overlook this ‘C’. Conditions refer to the prevailing market conditions in which the customer operates. If there is a product or service whose demand is above a certain threshold, you can be assured that the customer is on a financially strong wicket and has the potential to become a long-term customer. On the other hand, if their market is experiencing headwinds or is seasonal, you need to be a little more careful when finalising payment terms. 

Think of the 4 Cs of credit control as the foundational elements of getting credit control right, but considering this function will demand to be scaled, to meet the growing needs of your business, you will need access to scale your team of accountants, and this is where outsourced credit control services UK can help your company strategically. 

Benefits Of Outsourced Credit Control Management 

Scalable Expertise 

Access a dedicated team of credit control professionals focused solely on reducing Day Sales Outstanding (DSO) and mitigating cash collection shortfalls. This specialised focus ensures that no credit report or crucial customer data is overlooked, thereby maximising efficiency and reliability in managing credit. 

Effective Monitoring 

Implement a robust credit control function that includes daily monitoring of call logs and real-time tracking of ledger statuses. Features like call barging enhance the quality of support, allowing for timely resolution of payment issues and maintaining high standards in credit management. 

Customer Relations 

Managing delayed payments requires tact, especially when dealing with valued, long-term customers. Outsourced credit control services employ skilled communicators who use politeness and empathy to handle sensitive situations, thus preserving and enriching business relationships without alienating customers. 

Strategic Focus 

Outsourcing the credit control function allows your internal accounting team to concentrate on strategic, high-impact activities. While credit control is critical, offloading its repetitive, time-intensive tasks to an offshore team ensures that your core staff remains engaged with broader business goals. 

Strategic Cost-Effectiveness 

While cost reduction is a significant advantage of outsourcing, it also offers strategic benefits. An outsourced team managing your credit control not only handles routine tasks but also uses accumulated data to generate insightful reports. These reports can identify performance bottlenecks, highlight collection inefficiencies, and reveal potential cross-sell and upsell opportunities, thereby enhancing overall business visibility and strategic decision-making. 

Discover how we streamlined credit control and accounts receivable for a leading recruitment business. Read the case study now! 

The Right Credit Control Management Services Footprint 

The ideal approach towards maximising the benefits of outsourcing credit control is to first search for the right provider, ask for references, have a comprehensive discussion about your expectations and understand the deliverables, and only after you are sure about the capabilities of the outsourcing provider, should you hire their services. 

QX is a renowned finance and accounting services provider with an industry-leading reputation for delivering world-class services that cover the length and breadth of finance and accounting. With QX, you can scale your accounting function quickly, benefit from cost arbitrage, and leverage the best industry talent that brings immense value to the credit control function. 

Originally published Sep 28, 2023 08:09:42, updated Dec 04 2024

Topics: Benefits of Outsourcing, Credit Control Process, Outsourcing