Why credit control is vital

Posted on 5th March 2023 by Streets Business Support

Image to represent Why credit control is vital

The ultimate financial objective of most trading companies is to convert their supply of goods and services into cash – deposits in their bank account.

However, when goods are sold on credit, and you give customers time to pay, there is a delay in the cash conversion process, and for a period of time your cash proceeds of sale stay in your customers bank account.

Credit control is the management of this process to ensure customers pay in accordance with your credit terms (30 days for example). Without effective credit control there would likely be a further delay, beyond your agreed credit terms, and the cumulative effect of these delays could cause you serious cash flow problems.

An effective way to manage credit control is to automate the issue of statements and follow up letters using your bookkeeping software. It should be possible to manage the process by setting up delivery of reminders to pay by email.

Please let us know if we can help with the set-up process.

Finally, manage the process. As well as meeting your sales and profits targets each month, be sure to include a review of your current days credit being taken by customers. If the days credit taken is higher than the days credit you have set, then action may be required to intervene and chase payment by more direct means.

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The content used by Streets has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always seek specific advice prior to making any investment, legal or tax decisions.

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