Accounting and Payroll: Credit control and debt recovery

Credit Control and Debt Recovery

Credit control is about keeping your debtors, people who owe you money, under control and recovering debts.

The process should start before you enter into a trading relationship i.e. before you sell something to someone on credit.

Credit Checks

The first aspect of credit control is to perform credit checks on any entity, person or organisation, that wishes to obtain goods and services from you without paying at the time of the transaction.

A credit check is a process of asking the potential customer to supply several credit references and possibly a bank reference also. The entails the customer supplying you with names and addresses of a number of businesses with whom they have purchased goods on credit. Your task is to call these referees and ask whether your potential customer has paid promptly, stayed within the agreed terms of trading and has, in general, conducted business honourably.

It is commonplace for all businesses to have a “Credit Account Application Form”, the purpose of which is to ensure that referees are supplied, to make a note of the results of your credit checks and to standardise procedures in setting up a credit account.

It is important to consider that such credit checks are not fool proof. Often a customer will supply you with only the names of businesses that have had no problems with the customer. The customer will not disclose the names of businesses where they have failed to pay debts on time.

Debt Recovery

When debtors look like they are having difficulty with paying their debts to you, the sooner you act the more likely you are to recover your monies. We are often able to recover the debt without ever going to court, but if we do issue court proceedings, the costs and time involved are much less than you think.

The actions you can take are as follows:

· Send a reminder

· Telephone and/and write to the debtor asking for payment (you can also get in your car and go around to them)

· Put the customers unpaid account in the hands of a debt collector

· Sue for payment in a court of law

When dealing with a debtor that cannot or will not pay it is necessary to consider whether it is worthwhile to pursue the matter. It is often the case that the costs of recovering the money through debt collectors and/or law courts outweighs the possible benefits you might gain if the debtor pays up finally.

It is necessary to use tact when dealing with debtors and to know when they are lying about that “cheque in the mail”.