Credit control top tips: Setting effective limits

This is the third in our series of credit control top tips. Click the links below to view our first two tips:

1. Know your customer
2. Ask for a Personal Guarantee

Credit where credit’s due

Having done your homework about your customer, and perhaps explored the idea of getting a personal guarantee, you can turn your attention to setting and administering an upper credit limit for your customer.

Credit should be a privilege for your client and not a right; don’t be lured by the promise of new business into giving more credit than you can risk. Don’t be afraid to say ‘No’ or ask for money up-front; if the customer wants to do business with you and wants to buy your products or services, they will accept and respect that this is how you do business.

Once you have set a sensible credit limit, it’s important to ensure that your sales and business development teams know what that limit is and administered effectively to ensure that the limit is properly controlled.

You can always review your relationship as it continues to grow, but you should maintain control and monitor the situation as the relationship develops. Our top tips therefore include:

• stick to your limit; if a customer wants more of your goods and services that you are prepared to give credit for, don’t be afraid to ask for payment up-front
• if you have any doubts about being paid, the safest strategy is not to extend credit
• if you can’t be paid in advance, then consider taking security
• consider taking a deposit or taking a third party guarantee if in doubt
• check your credit limits are being adhered to throughout your business by frequent monitoring
• try using a third party credit checking system, before setting credit limits which can highlight payment issues, and review the limits periodically.

At the end of the day, the importance to you to manage financial risk to your business should outweigh the need to extend credit to your customer. In many relationships, there is, of course, a symbiosis and reciprocity which must be considered if you are both to succeed but managing that risk will be key to your own business’ prosperity.

Can we help?

Our experienced team would be happy to help with any queries which you may have and would be happy to discuss how we can help you in designing your credit control systems.