If you wish to run a successful business, then you should be aware of credit control and its aspects. Credit control is an important part of managing a business’s money. It is all about ensuring that customers pay on time. This would help your business stay financially healthy. Let’s take a look at different aspects of credit control including types of credit control, methods of credit control, benefits of credit control, etc. This guide will explain what credit control is, why it’s important, and how it works.
What Is Credit Control?
Now comes the main question – what is credit control? It is the process businesses often use to decide how much credit to give customers. It also involves making sure customers pay their dues on time. The main objective of credit control is to reduce the risk of not getting paid and to keep cash flowing smoothly.
How Credit Control Works
There are several steps involved in the credit control process.
Step 1: Checking Credit
Before giving credit, businesses look at a customer’s past payments and financial health.
Step 2: Setting Limits
Once the credit is checked, businesses set a maximum amount each customer can borrow.
Step 3: Tracking Payments
Regularly check customer accounts to check how much they owe and when payments are due.
Step 4: Sending Bills and Reminders
Send invoices right after a sale and reminders when the payment date gets closer.
Step 5: Following Up
Contact customers who are late with payments and take steps to collect the money if needed.
Who Uses Credit Control?
Credit control is used by many types of businesses, especially those that deal with credit. These businesses could be:
- Manufacturers who sell products to stores and get paid later.
- Wholesalers who sell large quantities of goods to retailers with payment due after delivery.
- Service providers who offer services like consulting or repairs.
- Retailers who give credit to regular customers or through credit card sales.
Why Is Credit Control Important?
Here are some of the significant benefits of credit control:
- Credit control helps ensure the business has enough money to pay its own bills and invest in growth.
- It plays an important role in lowering the chance of not getting paid by customers.
- Credit control also helps in clearing credit terms, thereby, building good relationships with customers.
- It prevents cash shortages that can disrupt business operations.
Also Read: 4 Ways to Improve Your Credit Score With a Personal Pre-Approved CASHe Limit
Types Of Credit Control
There are two main types of credit control:
Preventive Credit Control
It is the credit control when actions are taken before giving credit, like checking a customer’s credit history and setting limits.
Curative Credit Control
It is the type of credit control where actions are taken after giving credit, like monitoring accounts, sending reminders, and collecting overdue payments.
Credit Control Factors
There are numerous factors that affect the credit control process. Here are some significant ones:
- Credit control policies: Clear rules about who gets credit, how much, and what happens if they don’t pay.
- Customer assessment: Checking how reliable customers are at paying their bills.
- Monitoring systems: Tools for tracking who owes money and when it’s due.
- Communication: Regularly talking with customers about their payments.
- Debt recovery: Plans for collecting overdue payments, including legal steps if necessary.
What Is The Difference Between Credit Control and Credit Management?
Credit control and credit management are related but different:
- Credit Control: Focuses on day-to-day tasks like setting credit limits and collecting payments to reduce bad debts and keep cash flowing.
- Credit Management: Includes credit control but also involves long-term planning and strategies for giving credit. It is about finding the best ways to manage credit to help the business grow.
- Set credit policies
- Check creditworthiness
- Set credit limits
- Send invoices promptly
- Monitor accounts
- Send reminders
- Take action
Essential Steps of a Credit Control Process
Creating a good credit control process involves these steps:
Conclusion
Credit control is important for maintaining the financial health and stability of a business. In today’s digital age, tools like the CASHe app can simplify financial management for individuals and small businesses. CASHe offers instant personal loans, providing quick and easy access to funds without the lengthy approval processes. The app’s user-friendly interface would allow you to apply for instant personal loans, check your eligibility, and receive disbursements directly to your bank accounts in a matter of minutes.
