what is the procedure for credit control in trading business?

1) Ensure sales staff are familiar with company’s credit policy.

2) Use a credit application form.

3) Make a credit check on each new customer (bank references –v/s- trade references v/s Management accounts).  This can be a simple as downloading recent accounts from the Companies Registration Office

4) Obtain a personal guarantee from “doubtful” customers.

5) Set a “minimum order” level for credit sales.  It is important to remember that there is a cost involved in setting up a credit account

6) Decide which customers will receive credit – credit is not an automatic entitlement.

7) Assess if you need credit insurance.

8) Set a credit limit for each new customer. (There are two aspects to consider your company’s exposure to bad debts and you credit control)

9) Conduct regular credit checks on your main customers.

10) Use fully documented Terms of Trade.

11) Ensure Terms of Trade include a Retention of Title Clause.  Have this drafted by a solicitor familiar with your business.

12) Ensure your Terms of Trade allow you to charge interest on Late Payment.  (See legislation on www.entemp.ie)

13) Ensure your Terms of Trade have procedures to deal with disputes.

14) Ensure your Terms of Trade specify Credit Terms.  Best terms are 30 days from date of invoice – not 30 days from end of month.

15) Agree the payment terms in writing.

16) Give each customer a unique account number.

17) Confirm the following details:• Identify the company you are trading with.• Name of person within the company to contact over payment.• Contact address.• Phone/Fax/Mobile numbers/e-mail addresses.• Company VAT number.• Company registration number (if a limited company).

18) Record the date when payments are due.

19) Find out when your customers normally pay their bills.  Do not be caught out by the old chestnut ‘our computer run is on….”

20) Specify the most appropriate payment method:  cheque/electronic payment/credit.

Invoicing                                                                                   21) Check the accuracy of all invoices sent out.

22) Include the following on all invoices:- Your bank details.- Terms and conditions of sale.- Name of the organisation you are trading with.- Address for payment.- Order number.- Order description.- Delivery date.- Unit price.- VAT number, amount and rate.- Total amount due.- Due date for payment.- Payment terms.- Discounts given.

23) Issue an invoice within 24 hours of delivery of the goods or services.

24) Check that your delivery is in line with the order to avoid invoice disputes.

25) Confirm receipt of invoice for large accounts.

26) Issue monthly Statements of account showing invoices paid and still outstanding.

   Collection   27) Divide your customers into Good, Average and Bad, and set a Collection Policy for each category.

28) Properly allocate payments against specific unpaid invoices.

29) Phone major accounts before the due date of payment to ensure there are no disputes and that the way is clear for payment to be made on time.

30) Chase overdue payments within a week of them being due.

31) Conduct an aged debt analysis each week.

32) Prioritise your collection activity and chase the highest values first.

33) Levy a charge for “bounced cheques/direct debits”.

34) Use a set policy for further chasing, for example, standard letters, calls, faxes, visits referring to Solicitors or a Debt Collection Agency.

    Recovery

   35) Consider stop supplying when payment has not been made by a set time past the due date.  Have a different stop policy for different categories of customers.

36) Put the matter in the hands of a Solicitor or Debt Collection Agency.  Agencies:  (www.intrum.ie,  www.cashflowservices.com)

37) Pursue the claim through the Courts.   

Management    38) Have documented procedures including timescales for handling and resolving disputes.

39) Establish a system for measuring the success of your credit control function.  Establish “tight but attainable” targets.  Best measurement is Days Sales Outstanding (D.S.O.)

40) Have a regular monthly review to identify problem accounts and define courses of action.

41) Have regular meetings with your sales team.

42) Ensure your staff are well trained eg:  trained to prepare, listen, question, persuade and negotiate

Adhere to the credit control procedures and make informed decisions when dealing with the customer.
The Procedure for Credit Control in trade are: 1.
The first step in the credit process and the relationship with the customer is the credit application includes of indentifications with 3 trade references and director guarantees.
2.
The correct credit limit will also allow the branch to chase income early when a customer requires more products.
3.
Receivables Management - Staff awareness by staff who are serving the customer in relation (Communication) to the procedures in place to reduce late payment and bad debt.
4.
The stop list will list all customers currently in 60 days and 90 Days plus and will be at the service counter for all staff to refer to when taking customer orders.
5.
Cash on delivery is exactly that.
If the customer is not on site when the goods are delivered, or does not have a cheque or cash to pay, then the goods should not be delivered.
Even when these procedures are followed, still cheques can bounce, but if we have the correct identification, they can be chased and the debt recovered.

To increase sales, credit can't be avoided.
That's why control is needed.
For proper control the following steps can be followed :01.
Classify your customer according to their trade volume or intend to trade with you in measuring with quantity.
& value.02.
Fix credit limit based on quantity & value.03.
Fix minimum standard for the customer to give credit.04.
Set application procedure with some required document like Photocopy of Trade license, Photograph etc.05.
Fix security instrument like PDC, Bank Guarantee, personnel guarantee according to credit limit.06.
Fix your MIS according to your requirement.07.
Prepare aging schedule based on0-30,30-60,60-90,90 days over.08.
Remind & Follow -up collection through your sales persons.09.
Sending balance confirmation letter on each month and taking their signature on it.10.
Remind formally( through letter) if needed.
I think above procedure will help to control credit for a Trading Unit.

Cash flow is the very lifeblood of a business.
In this regard, each business should consider whether it is doing everything it can to ensure that its customers are paying on time.
Furthermore, the recovery of business debt can be frustrating, time consuming and often unsuccessful.
It is better to put in place proper procedures, which enable the early identification of potential bad debts.
Key to getting paid on time is having an effective credit management policy.

In trading accounts, first we should assess the requirement correctly, normally the borrower has to keep a margin, the rest is given by the Bank as working capital loan.

the monthly stocks and book debts (not older than90 days or as may be different in diff sectors) are taken regularly to assess the drawing power for every month so that we can actually monitor/ control the credit at our end.