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Consider these six things when you formulate a credit control policy

by , 03 September 2014
There's a tool to help you avoid cash flow problems and it's called a credit control policy.
It's true.

The best way to avoid running into a cash flow crisis is to manage your working capital properly by using a credit control policy.

If you don't have a credit control policy, formulate it today and be sure to consider the following six things...


Six things you need to consider when you formulate a credit control policy


Consideration #1: How can I control credit to individual customers and for debt collection?

Consideration #2: How much extra capital do I need to finance a total credit extension? This includes big or unexpected growth.

Remember, many businesses find themselves in cash flow difficulties because they grow so fast that the cash can't keep up

Consideration #3: What will additional finance cost for any increase in debtor volume or savings from a reduction in debtors?

 
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Consideration #4: Will I achieve any savings or incur additional expenses in operating a credit policy?

Consideration #5: How can I implement a credit policy?

Consideration #6: What are the effects of easing credit?

After you've considered these six things and have formulated your credit control policy, your focus will have to move to managing your policy to ensure it works, says the Practical Accountancy Loose Leaf Service.

Some of the things involved in managing a credit control policy include paying attention to your paperwork. For example, you must:
 
  • Send out invoices immediately after delivery, investigate queries, complaints and credit notes swiftly; and
  • Issue monthly statements early so all items on the statement can be included in customers' monthly bill settlements.
 
There you have it. If you want to avoid cash flow problems formulate a credit control policy and be sure to take the above points into consideration.
 
PS: We strongly recommend you check out the Practical Accountancy Loose Leaf service.  It will show you how to improve your cash flow, eliminate simple accounting mistakes, analyse your financial statements, identify errors, slash your audit fees and eliminate fraud in your company.


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