Building a Top-Notch Credit Control Department: 6 Essential Factors

If you want your business to get paid faster, on time, and enjoy stable and sustainable financial health, you should have a credit control department and it must function optimally. Credit control lies at the heart of the order-to-cash process, and makes sure that your business can manage its financial liabilities smoothly, thus building trust amongst its own creditors, and make necessary investments to drive business growth.

Let’s look at credit control and its importance through the lens of an example:

The three fastest-growing sectors in the UK in 2023 are Electricity, Gas, Steam, and Air Conditioning Supply; Mining and Quarrying; and Agriculture, Forestry, and Fishing. If your company is doing business with clients who belong to these sectors or these clients serve customers within these sectors, you can extend favourable lines of credit to them. But, should customers with a link, however tenuous, with fast-growing sectors immediately qualify for ‘great’ terms of credit?

No. They should undergo a thorough credit check, and there must be a continuous process of evaluating their financial health. This drives efficacy in credit control. Credit control ensures that your company can minimize the risks it incurs by doing business with clients in sectors that are witnessing a downturn or are cyclical.

Credit control plays a huge role in defining and enforcing the terms of credit you extend to your customers, which makes it a mission-critical function of your business. Get it wrong, and there is a direct impact on your business’s financial health. It is, therefore, vital that your credit control department delivers, as efficient as possible. This is reason why at times businesses opt for the credit control management services as this allows businesses to have an efficient credit control in place without the necessity to investing valuable time and resources in executing these tasks in-house.

What are the Different Methods of Credit Control?

The process of credit is all about ensuring that you are extending lines of credit and favourable payment terms to customers who can pay invoices on time. These terms are backed by assurance that their business is on a solid financial footing, with limited, manageable, or zero risks.

In order to build a robust credit control framework, some of the methods that companies employ include:

• Conducting a thorough credit check by leveraging reports from reputed credit bureaus that comprehensively assess the customer’s creditworthiness. It also includes learning everything you can about the customer, at least whatever is necessary, to get more clarity on the customer’s ability to pay your business on time.
• Once you check the customer’s creditworthiness, you must set ideal credit limits and payment terms. The equation is simple: the better the creditworthiness, the better the payment terms you can set.
• Credit control management is ongoing; therefore, you must set up a continuous monitoring process that reviews customer accounts regularly and flag the accounts with credit risks.
• You must institute and follow an effective debt collection process, including payment plan negotiation, follow-ups, and offering incentives for early payments.

How Can I Set Up an Ideal Credit Control Department?

It is the scale and scope of your business that determines the size of your credit control department and the critical role it plays in the overall finance and accounting process. As a company, you must also ensure that this department is not seen as a checklist item that must be crossed from the list but should be considered a strategic arm of your finance and accounting department.

Let’s take a look at the various key aspects you must consider while setting up a department that deliver long-term value-add:

1.     Evaluate Your Needs

This seems a generic ‘to-do’ activity, but it is important in order to establish a robust and reliable department. Ask yourself the following questions:
–  Why does my business need a separate credit control department?
–  Do I have the necessary expertise and experience (team) that can drive the company’s credit control efforts?
–  How will this department add to my personnel and infrastructure expenses, and can I afford to run this process in-house?
–  How will this department impact my business’s financial health and stability (is it worth the investment)?
The answers to these questions will deliver more clarity and confidence to your efforts to build a robust credit control ecosystem that delivers seamless credit control management services.

2.     Formulate and Implement a Robust Credit Control Strategy

Your credit control process must be well-coordinated and must check all the boxes for gathering the correct customer information, formulating payment terms based on this information, and ensuring timely reporting that helps you stay on top of the process. The credit terms extended to customers must align with the terms and payment timelines your business has to meet concerning suppliers. More importantly, every person associated with credit control should know the process and policy. Also, it is essential to continuously fine-tune the policy to meet your business’s growing demands and diverse customer profiles.

3.     Set up a Timely Invoicing Process

You don’t get paid on time if your invoices are incorrect or not sent to the customer as soon as a product/service is sold or delivered. For invoicing to succeed, there should be a seamless alignment between your frontline staff fulfilling orders and the backend, which should be well aware of the various stages of the order fulfilment process. One example of a seamless invoicing process is sending an invoice immediately after the product/service is delivered; following up with the customer to determine whether they have received the invoice and if there is any problem; confirming the payment due date; calling the customer a few days before the payment is due and in case of non-payment conducting regular follow-ups until the payment is made.

4.     Automation

Consider a scenario wherein an accountant has to go through the sales ledger manually, check payment status, and send customer reminders. This is a tiny part of credit control management but automating it can ensure that emails are triggered when payment is a few days away. The customer gets an automatic reminder that the payment is due, and this happens without the need for human intervention. You don’t miss out on sending reminders to any customer, thus saving time and efforts that can be better invested elsewhere.

5.     High-Performance Teams

Process efficiencies and productivity directly result from the teams behind the process, their experience, and their expertise. Not every aspect of credit control can be automated; you need a dedicated team of credit control experts who are monitoring call logs; not only chasing ledgers but also keeping track of these ledgers and also involved in call barging. If the customer refuses to pay or cannot satisfy their financial obligation, the team must be ready to liaise with the legal and compliance department to initiate actions. Credit control is a complex process, and the margin for error is minimal. The more professional people you put to work on credit control, the lesser the chances of error.

6.     Credit Control Outsourcing

While automation, an expert team of credit control professionals, and a comprehensive credit control process are ideal to ensure effectiveness, it is difficult to scale this process because it is difficult to find the right talent, and expert accountants are expensive, increasing the overhead costs. This means the in-house teams are overburdened with credit control work, resulting in errors and inaccuracies. The answer lies in credit control outsourcing, wherein the credit control function is outsourced to an expert team of accountants who will reduce the burden on your in-house team, add new process efficiencies through automation, and help you harness the power of new and improved accounting technologies. Moreover, you reduce costs associated with in-house credit control, which can improve ROI and business profitability.

Credit Control Optimisation Made Easy

With a demonstrable history of delivering high-quality outsourced finance and accounting services, QX can be your reliable and long-term outsourcing partner for credit control. Our accounting personnel have expertise across all aspects of credit control, and our services are backed by a commitment to delivering high-value services, attention to detail, and leveraging the benefits of technology to standardise and automate processes. Contact us to find out how we can make your credit control process even more efficient.

Originally published Oct 18, 2023 09:10:16, updated Nov 02 2023

Topics: Credit Control Process