Chartered Accountants & Business Advisers


Credit management – A sale is a gift until it’s paid for (part 1)

A sale is a gift until it's paid for

If your business model doesn’t allow you to be paid upfront…….… on.

Successful credit management should be front and centre for all businesses, irrespective of the wider economic circumstances.

We’re still coping with a massive contraction of credit across the world which makes your own credit management much more important.

These blogs set out a comprehensive framework for credit management to help you lower your risk and put more money in your bank account.

This first one looks at how to establish a credit policy and why it’s better to prevent than to have to cure credit management problems.

Establish a credit management policy for your business

Your credit management policy has to apply across the entire business, just as a smoking policy or a pension policy would. All areas of your business need to buy in to it and apply it otherwise it simply won’t work.

The policy should cover areas such as:

  • Standard credit terms as part of your terms of trade
  • Credit vetting prospects and existing clients
  • Pricing
  • Prompt raising of invoices
  • Credit insurance
  • Early payment discounts, interest on late payments
  • Putting slow payers on STOP
  • Collection procedures and targets
  • Legal recourse

It’s sensible to review the policy from time to time but more importantly it’s vital to ensure that your policy is being applied consistently across your prospects and customer base.

Once the policy is in place, it might be appropriate to include it on your website.

 Prevention is better than cure

There are several steps that can be taken to reduce the credit risk before a sale is made.

Firstly, consider checking the credit worthiness of your prospects before you go too far through the sale process.

There are several credit rating agencies in the UK (Graydon UK and Experian are two examples) and they will supply you with online credit reports and ratings which will help you to determine whether you want to proceed with a given prospect.

Many credit rating agencies can supply marketing lists pre-screened to contain only prospects with a decent credit rating. So, there really is no excuse to sell to high risk prospects in the first place.

Moving forward through the sales cycle, you can subscribe to online monitoring services where the credit agency will notify you of changes to your clients’ credit ratings.

Agreement in writing

It pays to have clear and unambiguous terms and conditions and to get these agreed in writing.

It almost goes without saying that prices and payment terms should be set out somewhere in the documentation, but sometimes these are dealt with separately, which is an opportunity to lose sight of the payment terms, so be careful.

In a perfect world neither you nor your customer will ever have to blow the dust off the T&Cs, subject to periodic review, but it’s important to know they are signed and on file if you need them.

Strangely, this is an area that businesses can be lax on and so it’s important that the chief executive leads from the front and ensures T&Cs are always in place before goods or services are delivered.

A useful online resource for T&Cs is NetLawMan. You can start with one of their contracts and adapt it to your own business before running it by your lawyer if you need to.


Hopefully you now have some thoughts about where to start and where you can go for help. If you’d like some one-to-one advice on credit control and management, please give us a call at Blue Dot Consulting on 020 7125 0270.


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