Bad debt, late payments and customer defaults can damage your business’ cash flow and liquidity, affecting creditworthiness in the long term. But how can you prevent this while maintaining service levels and adhering to your company’s credit policy?
The answer lies in a credit control management system, a key function of your wider business management system. Designed to reduce late payments and bad debt, it can help your business stay in the black while continuing to offer flexible payment terms to customers.
Here, we’re taking a closer look at credit control management systems, explaining what they are and the benefits they can bring to your operations. Use the links below to navigate or read on for the full guide.
- What is a Credit Control Management System?
- What Are the Benefits of a Credit Control System?
- The Advantages of Using Integrated Credit Control with an ERP System
What is a Credit Control Management System?
A credit control management system is a tool for controlling credit and debt within a business. It allows you to track and manage credit, so you can guard against late payments and customer defaults, thus maintaining your creditworthiness.
Through a credit control management system, you can offer flexible credit terms and discount structure to your customers while safeguarding your operations against bad debt. Such a system is ideal for recovering debt and reducing late payments, while also ensuring that both your staff and your customers adhere to the company’s credit management policy. It also automates many of the mundane processes associated with credit control management. For instance, reminder letters can be automatically sent out or alerts can be set up to remind staff about customers they need to call.
Typically, businesses either use disparate third-party applications to manage credit streams or are predominately manual based. You will still find the odd business who outsource this function but less so today with integrated business management/ERP systems handling it so seamlessly. Bringing credit control in house as part of an integrated management solution pays dividends, ensuring that internal teams have ready access to a customer’s credit and payments history. More on the benefits of integrated credit control systems next.
What Are the Benefits of a Credit Control System?
Maintaining creditworthiness is essential for a business’ long-term health and growth. Exposure to bad debt can be hugely damaging, hindering progress, driving uncertainty, and putting your operations at risk of financial collapse.
A credit control system can mitigate the risk of bad debt, making it easier to track customer credit and chase late payments. But what else can it do?
Below, we list 10 key benefits a credit control management system can bring to your operations.
- Streamlines accounting processes – one of the key benefits of a credit control management system is the simplicity it can bring to your accounts and financing provision. With a dedicated system in place for managing credit, payments, and debt, you can streamline a host of resource-intensive processes, freeing up personnel to focus on other duties.
- Protects your cash flow – bad debt can impact your cash flow, making it difficult to pay bills, suppliers, and employees on time. By tightly controlling credit with a dedicated system, you’re effectively safeguarding your cash flow, ensuring you always have enough capital to keep your business moving.
- Record all interactions – Every transaction can be recorded, giving you a holistic view on accounts, and set up payment reminders. Email invoices can be sent upon order with routine reminders improving the chances of timely payment.
- Reduces late payments – late payments impact your cash flow, which can make it difficult to maintain outgoings. A credit management system reduces the likelihood of defaults, allowing you to better manage customer credit and debt, while making it easier to chase and recover monies owed.
- Aids forecasting and financial planning – keeping track of debt is essential for long-term forecasting and financial planning. Without tight control of credit streams, you risk losing sight of key objectives and plans. A credit control system makes it easier to forecast for future growth, so you can stay focused on driving your business forward.
- Improves DSO (days sales outstanding) metrics – days sales outstanding or average debtor days represents the average number of days it takes for a company to receive payment for a recent sale. When DSO is high, this suggests an ongoing problem with a business’ debt recovery policy, the repercussions of which may affect cash flow and liquidity. A credit control system can help a business maintain low DSO, with faster payment times helping to galvanise cash flow and revenue.
- Supports business growth by freeing up working capital – net working capital (NWC) is used to measure a business’ short-term financial health. It represents the difference between assets and raw materials, accounting for all of a business’ current assets. Credit control makes it easier to maintain a positive NWC, ensuring that a business can pay its creditors and avoid bad debt.
- Supports customer service and experience – adopting a credit control management system is beneficial from a customer perspective. With an enhanced view of a customer’s credit activity, you can tailor future payment terms and deals based on their payment history – delivering better solutions to retain custom and improve satisfaction rates.
- Offers reassurance to lenders, investors, and stakeholders – controlling debt and maintaining creditworthiness is key to appeasing current and future stakeholders and investors. Say, for example, you want to attract funding to support expansion plans; a credit control system ensures that bad debt doesn’t damage your chances. In short, such a system supports future growth, helping you maintain the trust of valued backers and partners.
The Advantages of Using Integrated Credit Control with an ERP System
Traditionally, businesses relied on manual-based processes or disparate third-party applications to control and manage credit. And while many firms still use such antiquated practices and legacy systems, there is a better solution for managing credit that ensures tight fiscal control and increased accuracy.
A fully integrated credit control system, supported by a wider ERP infrastructure, offers numerous benefits beyond third-party credit applications. From real-time data access and workflow alerts to quick and ready access to customer payment records and credit histories; an integrated credit solution can make it significantly easier to manage credit and avoid bad debt.
Such is the technology and capabilities of modern credit management systems that the whole process is streamlined to allow for simple and intuitive credit control. In fact, many ERP systems offer account portals that make it even easier for customers to manage their outstanding credit and payments, freeing your teams from the resource-intensive work of chasing payments and recovering debts.
For more information on credit control and ERP software, check out our guide on the capabilities of modern ERP systems.
We hope you’ve found this guide to credit control systems useful. At Intact, we offer advanced business management solutions that are designed to make managing your day-to-day operations simpler, including credit and debt management. For more information or to learn more about our products and services, visit the homepage