Debtor Control Checklist

If your customers are having problems, there's a chance that they will be unable to meet their financial obligations to you.

Setting up credit controls and better managing debtors will improve your chances of payment when things go wrong for customers.

If they know you mean business, and if you take the appropriate steps in a disciplined manner, they are more likely to pay on time.

Some business owners are concerned about taking such a disciplined approach to debt collection as they are afraid of losing the customer.

But if customers are not meeting their payment obligations, they are not worth having. You should be using your working capital to fund your own business - not your customers'.

There are three steps to be taken to exercise appropriate controls over debtors. They are: setting up credit controls; managing debtors systematically; and following up with problem customers.

Steps that companies should take to manage debtors are shown in the following checklist:

Set up credit controls

• Have a process in place and stick to it
• Encourage customers to make payments directly to your bank account
• Use references and reports to check credit ratings for new customers, particularly those placing big orders from the outset. Such checks should identify customers that have had bad credit records in the past, so that they can be declined or closely monitored
• Set terms of trade and stick to them. It's much easier to follow up on slow payers if your trading conditions have been clearly laid out from the beginning
• Rank debtors by value and risk, and monitor accounts accordingly

Manage debtors

• Follow up on all slow payers
• Deal directly with decision-makers. Monitor collections and follow up immediately if payment schedules are not met
• Automatically send 30, 60, and 90 day reminder letters. Insist on your trade terms being met
• Visit them if payments are not made on time - and don't leave the premises without their commitment
• Don't rely on one visit. Maintain follow up. If necessary, include regular telephone reminders. Don't finish the call without obtaining a firm commitment to make a payment. Follow up again if it is not paid on the promised date - or better yet, undertake to pick up the cheque
• Review credit ratings regularly for any changes in buying habits and increasing levels of debt. Long-standing customers can be the greatest credit risk, because no-one thinks to check on them
• If you don't get invoices out promptly it encourages customers to delay payment. Delivery systems should also be checked. For instance, do you keep signed delivery dockets so that you can prove delivery?
• Keep an eye on customers expanding quickly. A growing customer may help your sales, but rapid growth also puts pressure on the customer's management and may increase risk. Make sure they continue to pay promptly
• Be careful when handling any requests for extended credit. Check out the customer's ability to survive, and make a commercial decision based on the available information

Problem customers

• Look out for warning signs that customers are experiencing difficulties. Sometimes they are not easy to recognise. For instance, while the sales team may want to claim credit for any increase in a customer's ordering, the new business the customer is giving you may be the result of other suppliers removing credit facilities. Industry gossip about a company's financial position is often surprisingly accurate
• It is important to get difficult debtors to admit they have problems in paying and to then obtain a firm commitment for an amount to be paid against the account. When possible, get this commitment in writing or write to them confirming their commitment
• If accounts are not being paid, supplies should be stopped. This should be part of your credit system. You can then discuss the situation with your customer, and perhaps reach an understanding regarding payment for past supplies and conditions for new supplies
• Don't put off sending professional demand letters or threatening legal action
• Discuss your policy and the credit limits you are applying up front so customers know you are serious about your collection program
• If necessary use a professional debt collector and be prepared to go to court

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