Drawing up a credit control procedures flowchart is a great way to visualise each stage of the process, and understand better where you should place more focus, and how this will benefit your business.
Like credit control itself, you should recognise the full range of procedures used – from the first contact with a new client, to regular updates on existing client accounts.
First, you need to establish the risk posed by new customers, and in general the best way to do this is by obtaining a credit report, so your first box should contain ‘background credit checks’.
What happens next depends on your business and your attitudes towards risk – a good credit rating will usually mean the customer is approved without further delay, but a poor or medium rating might mean rejection, or a lower credit limit and other account restrictions, so factor these into your flowchart.
You might also ask customers with a worse credit rating to pay a deposit or a percentage of their final invoice upfront – a bit like utilities suppliers putting their least reliable customers on prepaid meters.
Again, depending on your approach, your credit control procedures flowchart might keep these two groups of customers separate throughout, or after this initial deposit, you might bring them back together in terms of how you handle the supply stage.
Remember to send your Ts & Cs to new customers as early as possible, so that you can begin applying them to your dealings with the customer – don’t wait until the invoicing stage and then expect your terms to apply retrospectively to the work already done.
In the payment phase, make sure your flowchart shows how you deal with late payment and with non-payment – whether that means chasing for payment, or refusing to supply the client with any further work until their account is settled.
Even if a customer pays on time, you should always be watching for alarm bells, such as a fall in their credit rating, or other suppliers claiming that they have not been paid, as these can be indications of financial difficulties behind the scenes.
When you become aware of any such issues, be sure to include a feedback loop in your credit control procedures flowchart – leading back to the initial approval stage, as it is usually sensible to treat the new risk profile of your client as though they were a brand new customer, rather than being swayed too much by a sense of loyalty for prompt payment in the past.
If you have a particular ambition from your credit control – to reduce late payment, or to ensure all invoices are paid early, for instance – factor this into your flowchart, so that your overall procedure is designed towards achieving this desired outcome.
And don’t just file your flowchart away and forget about it; make sure your finance team are aware of it, give copies to your outsourced credit controllers, and remember to apply it on an ongoing basis, if you want to achieve your aims in the long term.