Credit management is the process of setting and reviewing credit policies, evaluating customers, granting credit, monitoring its usage, collecting payments on time, and managing risks associated with late payments. It plays a vital role in the sales process by reducing bad debt and ensuring consistent cash flow, and effective credit management is vital for any business to maintain a healthy cash flow and ensure long-term financial stability.
So, how can you improve your credit management processes?
Set and review your credit policy
A clear credit policy provides solid guidelines for offering credit to customers. It should cover terms and conditions, methods of payment, risk appetite, credit limits, and additional protections like credit insurance or personal guarantees. Ensuring these policies are regularly reviewed and communicated to the whole team helps maintain consistency and compliance.
Evaluate customers
Assessing a customer’s creditworthiness involves collecting key information through credit application forms such as company details, ownership structure, financial position, and trade references. Tools like credit analysis reports and credit insurance portals help validate this information and determine appropriate credit limits.
Establish credit terms
Once credit is approved, it’s essential to set clear terms such as credit limits and payment periods. These terms should align with the customer’s financial capacity and payment history, ensuring a balance between supporting sales and minimising risk.
Monitor customer credit usage
Keeping track of how customers use their credit is crucial for early detection of any potential issues. Monitoring company filings, tracking payment behaviour and maintaining regular communication with branch teams can help identify risks early so you can take proactive measures.
Collect payments efficiently
Timely payment collection can significantly boost your business’ cash flow. Using electronic invoicing, proof of delivery systems and automated statements will help reduce your administrative overhead and ensures your customers have clear and accurate payment information.
Manage late payments
Addressing late payments requires structured follow-up including reminder letters, call cycles, and setting cash collection targets. Automating payment reconciliation processes saves time and enables the team to focus on high-value customer interactions.
Recovery proceedings
When payments remain overdue, it may be necessary to initiate formal recovery processes like sending letters before action, engaging debt collection agents, or pursuing court action. Evaluate the cost-benefit of legal action and consider insolvency proceedings carefully before taking action.
A well-structured credit management process not only safeguards a business’ financial health but also strengthens customer relationships by setting clear expectations and providing efficient support. By implementing these best practices, businesses can reduce risk, improve cash flow, and create a foundation for sustainable growth.
If you’d like to know more about how to improve your credit management processes, watch the Merchant Healthcheck Webinar below. Or you can contact Moorgate Management’s CEO Chris Maityard on cmaityard@moorgatemanagement.com or 07767 291 379 for more information.