Credit Management

Credit Policy

Your company credit policy should minimise the potential loss of income from slow paying and delinquent accounts. Additionally, your policy should be reviewed periodically to ensure that it reflects changing legal requirements and industry practice.

Consider the following:

• Are you prepared to risk a start up company without a trading record? If so, are the proprietors known to you and others in your industry? What special credit restrictions will you place on the customer? What is their track record (if any)?
• Have you established your credit terms, 30 days, 45 days etc?
• Have you ensured that the applicant understands your trading terms?
• Do you have a suitable letter approving or declining credit to an applicant?
• Have you a suitable letter of demand for those who do not pay within your terms?
• Do you obtain directors guarantees for companies?
• An application for a sole Trader, Partnership or Registered Business would be suitably modified for each situation. If you require director's guarantees (for a company) then a separate guarantee form is required.
• Do you re-establish your credit terms/guarantees every 2 years for companies that you are supplying credit? Remember, office bearers and directorships of a company can change without you being aware of it.

Consider this:

• The GST may pose a serious cash flow problem for your business if invoices are not paid within your credit terms. You could face GST payment obligations on sales while you wait for customer payments.
• If your business operates on a 10% margin, an uncollected account means nine new jobs of similar value just to recoup your loss.

There are many issues, which we would be happy to discuss with you.