Many small businesses – and some fast-growing larger ones – need a credit control definition that relates directly to their day-to-day operations, rather than the relatively large collection of different disciplines that go into keeping on top of client payments.
But it’s not easy to narrow down this broad field into a single definition. After all, ‘ideal’ credit control covers everything from agreeing payment terms upfront, to issuing invoices promptly and correctly, to chasing for payment and dealing with instances of non-payment.
If you look up a definition of credit control, it will typically tell you that it consists of:
- Approving credit to creditworthy customers in order to increase sales revenue.
- Denying credit to risky customers in order to minimise losses from bad debts.
Many definitions add an interesting footnote – that effective credit control lies in the measures used to predict a customer’s creditworthiness, rather than in the measures taken to recover bad debts once they occur.
This is true to an extent, but even a customer with a good credit rating can fail to pay sometimes, whether due to financial trouble of their own, a deliberate attempt to dodge paying you, or simple oversight.
And good credit control goes beyond just deciding who to supply and who to refuse – it’s about setting sensible credit limits, adjusting these over time, and being realistic about how quickly your customers will pay you.
Ultimately, the best credit control definition for many real-world scenarios is this:
To reject customers who represent a bad credit risk, while supplying those with a good credit rating on terms that minimise your risk; and to take action to promote prompt payment in full, and to recover overdue payments from defaulting debtors.
This definition of credit control incorporates all of the things already mentioned, from background credit checks to bespoke payment terms and conditions, effective invoicing procedures, debt recovery and tracing debtors who have ‘done a runner’.
Best of all, it recognises that credit control is not any one part of the process, but spans the entire range of processes that can help to get you what you are owed, and maintain healthy cash flow on an ongoing basis.