I recently did some research on the key success factors of a company credit function. This involved speaking with credit managers from around the globe who operate in both the public and private sector. The same factors came to the fore for both multinational companies and startups. It is even more important for a startup to make sure they have effective credit practices in place as they are unlikely to have the cash reserves of a more mature organisation to help them over a cash flow difficulty.
Ranked in order of importance, below are the eleven factors that credit managers identified to be essential to effective operation of a credit function.
Early and accurate billing: This means getting an accurate invoice out to the client as soon as possible. Any delay or inaccuracy in the invoice will cost time to correct and delay payment.
Credit management system: This is like a CRM for the credit department. A good system will also allow you to automate a lot of the process allowing you to focus on those accounts that need attention.
Accurate data collection and maintenance: If you do not collect correct information about your clients you will run into difficulties when you invoice them. In addition, this data degrades over time as clients change contact details, so it needs to be constantly updated.
Specialist collections training and support: The accounts receivable of a company is usually one of their largest assets and managing that asset requires training.
Performance culture: No matter what processes or systems you put in place, if the performance of the systems in place and the people managing them are not assessed, then it is unlikely the credit function of the company will fulfil its potential.
Early client engagement: It is vitally important to be in email, letter and phone contact with your client from as early in the process as possible. I would normally suggest ringing before the due date to check the invoice has been received and is cleared for payment on the due date. This allows you time to deal with issues early in the process and gets across that you are serious about payment.
Range of payment options: You need to make it easy for your clients to pay. Make sure that you offer methods of payment that are commonly used by your target clients. A online portal is a particular plus as it allows for out of hours payments.
Document policies and procedures: These documents need to be well used and regularly updated. They set the tone for how you want to deal with your clients.
Single customer view: This allows you to see everything that is owed by or to your client on one screen so making it easier to manage the account.
Appropriate 3rd party collections usage: Nobody wants to pass an account debt collector or solicitor but sometimes it is necessary and you need to decide what those circumstances are for you.
Tailored collection chase paths: A collection path is the series of letters, emails and phone calls you make to the client to follow up on late payment. This needs to be tailored according to the client. There is no point sending a gentle reminder to someone who has a history of slow paying. In that case it might be better to ring early.
Keep these points in mind as you build your credit function. With all of these in place you are more likely to succeed. Remember that speed is everything as the longer an account remains unpaid the more likely it is to become a bad debt.