Business Credit Management UK

Credit Policies

Opening New Accounts

In today's computerised world, it is difficult (if not impossible) to sell to a new customer unless there is an account set up to hold customer information (account number, name and address, etc.), as well as the transactions that will take place between the company and the customer (invoices, payments, and adjustments). Your credit policy should determine requirements for setting up new accounts. Some potential requirements are:

  1. Credit Account Application
    Does the customer need to fill out, sign and return your credit application form or will you accept verbal information or the customer's credit information sheet? It is strongly recommended that a signed application form is obtained. Either way it is important you know precisely who your customer is.

  2. Financial Statement
    Do you require a credit status information report? Do you require a copy of the customers latest audited management accounts?

  3. Trade References
    If you are going to accept trade references a minimum of three should be required and they should be carefully checked

  4. Bank Reference
    The customers written authority is now required before you can ask bankers for a reference and a fee is payable to the bank

  5. Consider Credit Insurance

  6. Has the customer seen and signed the acceptance of your terms and conditions of business?

Establishing Credit Limits

Before establishing a credit limit for a new or existing customer, you should require some or all of the following in order to determine the creditworthiness of your customer:

  1. Credit Account Application with full details of the customer i.e the Correct trading title and address, telephone number and if Ltd company the registration number. If it is a partnership, the full names of the partners and if a sole proprietorship the full name of the proprietor.
  2. Credit Investigation of Bank and Trade References
  3. Credit Status Information Reports
  4. Industry Credit Circle Information

In addition, you should also be aware of and take into consideration additional information that could effect the desirability of the account.

  1. Competitive Factors
  2. Importance of customer to Sales / Management
  3. Profitability of this account to your company
You should now have enough information to make a decision on how much credit to allow your customer.

Methods of lowering risk and increasing Credit Limits

There are several ways a creative credit management team can lower the risk or increase the amount of credit on any account. Some ideas are as follows:

  1. Up front payments
  2. Have strict credit limits
  3. Guarantees - Holding Company and personal.
  4. Security.
  5. Shorten terms.
  6. Talk to customer directly about mutual requirements.
  7. Raise prices to pay for the increased risk.
  8. Credit Insurance

Maintaining credit on existing Accounts

Once you have obtained an account, you don't want to lose it. Work hard to maintain the account by meeting the customer's requirements and by fullfilling your own credit policy requirements as follows:

  1. Attend industry trade groups
  2. Keep records to follow history of account
  3. Listen to your sales personnel
  4. Monitor trade references
  5. Keep status information reports up to date
  6. Talk to customer and ensure you have effective debt collection procedures
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