Free Credit Control Course

Definition: Credit control is the strategy used by a business to offer and manage customer debt, i.e. supervising the sales ledger. It is the term used to denote the policies, procedures, processes, and strategies employed by a company, business, or other entity to manage the credit it offers to its customers. Credit Management and Credit Control are often used interchangeably and refer to the same concept.

Not all businesses deal with an instant exchange of cash for their goods or services (cash sales). Instead, goods and services are often provided on credit (credit sales), meaning customers are invoiced for goods and services and pay later.

1.2 Why offer credit to customers?

There are several benefits to offering credit to customers. Offering credit can:

Attract a more extensive clientele
Increase sales
Strengthen customer relations
Improve business logistics
Help a business be competitive

Part 2: Approving Credit

Module overview:

Credit applications
Trade references
Credit checks
Credit limits

Credit applications explained

2.1 Credit Applications

Prospective credit customers complete a credit application.

Credit applications help a business evaluate whether a client should be offered credit, the amount of credit to be offered, and potential risks associated with the credit.

Credit applications are helpful for several other reasons:

They provide a business with the direct contact details of their prospective client.
They provide references that are verified to ensure the prospective client has a history of financial trustworthiness and responsibility.
The information on the application allows a business to perform a credit check.
The application is a document that can be useful if legal proceedings are ever initiated.

A business customer completes a credit application. The application asks for the following details:

Customer name and address
Customer contact details
Trade references
Customer signature and date

You can download an example credit application form below (Word and PDF):

Credit Application Template

Credit Application Template PDF

Credit limits explained

2.2 Credit Limits

Definition: A credit limit is the maximum amount of debt (credit) a business offers a client. Once the limit is reached, the customer is unable to purchase further goods or services on credit. This is called putting an account on hold or stop. Buying on credit is possible only when sufficient credit is available again through payment.

After a credit application has been completed, reviewed, checked, and approved, a credit limit should be agreed upon for the customer's credit account.

Credit limits are set based on the following:

The recommendation of credit check software
The expected turnover from the customer
How much risk a business is willing to take, i.e. how much credit they are willing to offer.

policies and procedures

Part 3: Credit Control Procedures & Policies

Module overview:

Credit policies
Credit procedures
Various tips and advice

3.1 Credit Policies & Procedures

A company should have several well-planned credit control policies and procedures to ensure credit is provided and managed efficiently.

These should include:

All customers must complete and a submit credit application.
All customers receive an agreed credit limit
A monthly review of customer account balances and credit limits
A monthly review of outstanding and overdue invoices
Regularly raising and sending sales invoices.
Regularly chasing customer debt through email, post, and phone.
Rules, policies and procedures for pursuing legal action against a customer who hasn't stuck to their payment terms