Office Inefficiency When Giving Customers Credit

by | Jan 31, 2017

A business owner cannot expect to successfully collect customer debt if they don’t control who they give credit to.  I have compiled a list of common business inefficiency issues when providing customer credit.

Inefficiency 1: Extending credit to anyone who walks in the door (credit by default)

If the customer doesn’t ask for credit, then why give it to them?  There is no point in making a sale if you don’t get paid for it.  You need to change your priorities – it’s the paid sale that is important not just the sale.   If you do not control the credit you give, then you will be writing off invoices or spending a lot time on the phone for outstanding invoices.

Inefficiency 2: Giving customers too much credit before they prove themselves

Some customers have a difficulty in managing their cash flow – you are not doing your customer a favour by giving too much credit and allowing them to increase their debt to the point of not being able to pay you.

Inefficiency 3: Allowing credit to customers who lack credit-worthiness

If you give credit to customers who are doubtful you are risking write offs.  One-off sales can come into this category as business owners often do not ask a customer to complete a credit application to check references for a one-off job but still give 30 days’ credit.  There no motivation for a customer who only deals with you once to pay – no point in cutting off their credit if they are not going to buy from you again.  And if the sale is under $1,000 it could be too costly to seek legal action.  Customer who have not intentions of paying in the first place take advantage of small businesses who will give credit just to get the sale.  No point in making a sale when you don’t get paid.

Inefficiency 4: Failing to run credit checks on all credit applicants

If you don’t contact the referees, how are you to know the customer’s credit history?  Some may say, what is the point of referees as the customer is going to give you their best referees.  If these referees are businesses, then it is not in their best interest to lie to you about the customer’s credit history.  Credit reporting agencies are another source of information but not all businesses report defaults so the report is going to be incomplete.  And the media have been reporting that some of the data the agencies have is not always correct.  So, if you phone the customer’s referee and use the referee questionnaire in the Biz Skills course downloads, you will have a better chance of determining the creditworthiness of the customer

Inefficiency 5: Failure to advise the customer of the business’s terms of trade

There is a window of opportunity at the point of sale when the customer is keen to purchase that you can advise your terms of trade and come to an agreement.  Failure to advise your customer of your terms of trade is like handing your credit control to your customer and they could pay when they like.

Inefficiency 6: Failure to ask for a deposit

On a job where the purchase of equipment etc. is required you should ask for a deposit to at least cover that purchase or you are putting yourself at risk if the customer does not pay – particularly if the job is a one-off sale.

Visit the Queensland Government Business website for advice on managing debtors

QLD Government Business website – managing debtors

Go to the list of courses to access an individual course if you would like more information.  You will find a preview of the course and a free download with details of the course content.

The Debtor’s Ledger Management Course encompasses all the elements of the Debtor’s Ledger system being *Accounts receivable, *Customer Negotiation, *Customer credit assessment, *Policies and procedures, *Debt collection Activities, *Training employees &,*Cash flow management

The Effective Debt Collection Strategies Course provides strategies to reduce the current debt and the skills to collect customer debt efficiently and effectively.  The course includes a phone script and ways to deal with customer excuses.

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