How to Build an Effective Credit Control Policy?

Working on credit terms with clients is common among business owners. Some may have it easy as their suppliers and vendors make timely payments. This way, one can know about the cash flow. What doesn’t work is when your client delays payment or does not pay you at all. You may find it hard to deal with business credit defaulters. That’s why you need an effective credit control policy. 

Effective Credit Control Policy

If we talk about a credit control policy, it’s a set of rules that dictates how you manage credit and deal with parties to whom you have issued credit. Is there a credit control process, or do you rely on invoices to get paid? Most small businesses make the mistake of approving credit without stating clear terms in writing. 

You don’t have to repeat such mistakes. Let us share what you can include when writing a credit control policy.

Elaborated credit eligibility criteria

While building a credit control policy, you should elaborate on the credit eligibility criteria. You should mention who all can avail of the credit facility. You want to give credit or work with people who can pay you back. That’s why it’s important to understand your customer base. As you check your commercial CIBIL report, you can review your client’s credit information report before approving credit.

Communication channels

If you’ve recently started a business, you may know how important it is to offer different communication channels to your customers to increase sales. Relying on emails or phone calls may be outdated. You can use chats and instant messaging now. So, when it's about writing a credit control policy, don’t forget to mention different communication channels to be used at the time of payment collection.  

Payment methods

If you’ve entered into a new trade partnership with a vendor, you should include payment methods in your credit control policy. Besides using business credit management techniques, you should mention different payment methods through which a debtor can pay you back. It could be digital payment too. 

The point is to put a stop check on obsolete credit control practices like relying on bank transfers and checks. The checks may bounce, resulting in further delays. 

Terms and conditions

It goes without saying that you need effective terms and conditions mentioned in your credit control policy. It helps you avoid payment disputes and financial fraud. These terms could be concerning payment deadlines, invoicing deadlines, late payment fees, or legalities involved. 

Roles and responsibilities

Your credit control policy should mention who is accountable for escalation, collection, record maintenance, etc. An accounting department may have sub-departments. Assigning roles and delegating tasks can help expedite the payment follow or debt collection process in case of a payment defaulter. Take note that your business credit information report may suffer due to your negligence.  

If you can consider all these factors while building a credit control policy, you’re likely to avert risk. You can also discuss it with your business associates or mentors who can help you suggest better. The idea is to offer credit to reliable businesses and avoid financial debacles. 

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