What Is Credit Control? + 4 Tips To Tighten Credit Control Measures

How Credit Control Processes Work

Credit control refers to the protective measures a business takes to make its credit lending procedures more reliable. For your credit control system to work, you’ll want to execute the following:

1. Verify customer information: Ensure you have accurate and up-to-date contact information for the customer. This can prevent invoices from being sent to dead inboxes or old addresses, and keep payments on schedule.  
2. Establish background check procedures: Vetting customers before extending credit is crucial to upholding a credit standard. Decide what sources you’ll use for credit checks such as a bureau like Creditsafe, what information you’ll need from their bank, and what will be considered a trustworthy reference. 
3. Set credit limits: Regardless of your customers’ creditworthiness, your business will only be able to extend a limited amount of credit at a time without it negatively impacting cash flow. Decide what this amount should be and how you’ll go about issuing lines of credit to customers.
4. Conduct periodic reviews: The need for credit control is ongoing. Reviewing customer accounts is an important step to figure out what’s working and what’s not. You can use this information to adjust credit limits or change processes to improve results.   

These four processes work hand in hand to deliver effective credit control.

Is Credit Control Different From Credit Management?

Credit control means a business is taking steps to offer credit to customers who can honor the terms and conditions of the sale. Credit management, on the other hand, is what follows — when the business actively monitors customer relationships to ensure timely payments.

So, credit control can be understood as setting the stage for efficient credit management.

Must-Have Credit Control Measures

There are four primary credit control measures you should pay special attention to:

• Credit standards: Determining a customer’s creditworthiness at the start sets the tone for all other credit control measures. How will you assess a customer’s credit score and credit history? 
• Credit period: Offering long credit periods is beneficial to customers, but can interrupt your cash flow. How long can your company afford to go with an outstanding invoice before it interrupts operations? 
• Invoice discounts: Offering discounts for early payments can have a positive impact on cash flow. How large a discount can your company afford to offer without negatively impacting profits?
• Collection policy: This factor addresses how lenient or aggressive your company will be in pursuing accounts that are in default. How quickly will you send overdue invoices to collections? When will it be necessary to take legal action?

Identify how your team should go about addressing these measures with customer accounts to improve team effectiveness.

Establishing Credit Control Procedures

Credit control should not be a vague term that’s used lightly. Collect your credit control procedures into an official document that your team can reference and put into action.

Keeping your finance and sales teams aligned on company initiatives is necessary for its overall success. This also requires keeping the document up to date with the findings from your periodic reviews.