What Credit Control Is

Most businesses that sell to other businesses do not ask for cash at the moment of sale. They deliver the goods or the service, send an invoice, and give the customer a period of time to pay, such as 30 days. This arrangement is called trade credit. It is normal commercial practice, and customers often expect it.

Trade credit is not a loan. No money is lent and no interest is added. The seller simply agrees to wait for the agreed price. But waiting has a cost and a risk: until the invoice is paid, the seller has given away goods and work and has nothing in the bank to show for it.

The two jobs of credit control

Credit control is the work of deciding which customers may buy on credit, on what terms and up to what amount, and then making sure they pay on time. It has two halves:

• Before the sale: a clear credit policy, checks on new customers, sensible payment terms and credit limits.
• After the sale: reminders, collection calls, solving disputes, and dealing with customers who cannot or will not pay.

The second half is often called collections. A person who does this work may be called a credit controller, a collections officer or a credit and collections analyst. In a small business, the owner or the bookkeeper often does it alongside other tasks.

Good credit control helps sales

Credit control is sometimes seen as the department that says "no". Done well, it does the opposite. It lets the business say "yes" to more customers with confidence, because it knows who can pay and it notices early when something changes. A customer who pays on time can be given more credit and can buy more.

Example. Brenlow Engineering, an engineering contractor, supplies spare parts to many small workshops. Its credit team checks each new workshop, gives it a starting limit, and raises the limit after six months of on-time payment. Sales grow, and the amount of unpaid old debt stays small.