Credit Coach

Having complete and accurate Terms & Conditions that protect you

.
Declan Flood

Most people don’t seriously consider their Terms & Conditions until there is a major problem then they go through the small print hoping there is something there that will solve the problem they are having and in most cases they are disappointed because more often than not, they find that their own terms & conditions protect the customer more than themselves.

There are a number of misconceptions regarding Terms & Conditions (T’s&C’s):

When you talk about terms it usually refers to the length of time you are prepared to extend credit to your customers. Beware of terms like “30 days” as clear as they might seem they are nearly impossible to enforce, because it is too vague, is it 30 days from date of order, delivery, invoice, receipt of invoice or end of month following invoice? Unless you specify you will think it is the shortest and your customer will think it is the longest and you have created a situation that could lead to disputes with you customers. Be clear, 28 days from date of invoice – will work if there are only one invoice in a month, end of month following invoice is better when there are multiple invoices. There is no law that states you have to give 30 days credit so negotiate, weekly accounts, accounts to be paid by the 7th of the month following or the 15th or the 21st are easier to enforce and everyone is looking at the same information.

You must review your published Terms and Conditions, where did they come from? Did you get legal advice or did you rob them from someone else? If it is the later, and most are derived this way, read them thoroughly to make sure what they contain and that they are really applicable to your business.

Putting your Terms & Conditions on the back of your invoices is not good enough alone. By definition an invoice is a post contractual document and you cannot introduce your terms after the contract has been entered into. You have to make them aware in advance, best of all at the time of signing the contract or when they apply for a new credit account make sure they sign to confirm they have received a copy of your terms & conditions and agree to abide by them.

Items that should be included in your Terms & Conditions:

1. General Terms
2. Orders
3. Service levels
4. Pricing Policy
5. Payment requirements
6. Interest Payments
7. Delivery
8. Warranties
9. Insurance
10. Complaints
11. Product Recall
12. Product withdrawal
13. Arbitration Clause (optional)
14. Jurisdiction
15. General Liability
16. Limitation of Liability
17. Indemnity
18. Force Majeure
19. Retention of Title
20. Penalty clause
21. Intellectual Property Rights
22. Termination
23. Storage
24. Waiver
25. Assignment
26. International Sales

This list is not exhaustive and should include or exclude items depending on your business. Remember you get to write them so you have to make sure they are designed to serve you and to minimise the number of disputes with your customers.

Knowing your customer and what they want

Declan Flood

One of the fundamentals of doing business has to be to know your customer and it is your job to find out exactly what they want and you success will come down to your ability to deliver exactly what they want at a reasonable price while meeting or exceeding their expectations.

So many business people make the mistake of focusing on what they are offering rather than what the customer wants, this mistake has been at the root of almost every business failure. To run a successful business you must be flexible enough to alter your offering in line with changing market conditions and the economic realities. While it is essential to map out a direction for your business it is equally essential you keep reviewing it and make the necessary alterations on an ongoing basis.

Most businesses overlook their credit function in delivering this, and this article sets out some ways you can make it better:

1. Your New Account Application Form is a perfect opportunity to ask your customer the questions that are important to you. I prefer to use the phrase “New Customer Information Form” where you get to ask the questions that are relevant to you. Do you have such a form? Do you really know your customer from the information they provide? Does the information provided form the basis of your internal credit assessment of the customer? Does the form set out clearly how they would like to be served? If you answered “No” to any of these questions perhaps you should review your mechanism for selecting new customers.
2. Your Credit Controllers or the person you have entrusted with the important task of obtaining payment on a timely basis, is in contact with your customer more often than your sales staff, they have more information than you might think on every credit customer you have. Do you know the questions to ask? Do you know the reports you should develop to maximise the effectiveness of this information?
3. Do your sales staff, your credit staff and your delivery staff or service providers meet on a regular basis to discuss the issues your customers are having with a clear agenda as to how you can improve your customers experience? If not you could be missing out on some wonderful opportunities.
4. Do you sales staff and your credit staff meet your key customers to make sure they are happy doing business with you and do they discover new ways to serve them better?
5. Administration plays a very important role in the relationship with your customer – do you put enough attention on it?
6. When a customer shows signs of financial problems do you allow the Credit people handle it or have you an integrated approach involving others within your business to find a way of continuing to deal with them and reducing exposure at the same time?
7. Do you check every cheque coming in every morning to make sure you really know who your customer is? Do you keep copies of cheques?
8. Do you have an Information provider who keeps you up to date with all the information that is being filed by your key and high risk customers?
9. Do you read the relevant business publications to keep up to date with ongoing developments in the market and with each of your customers?
10. Do you have your own internal information sheet to gather information from every person in your own company that is in contact with customers?

I hope by answering the above questions honestly it will help your business to become more competitive with the customers that you want to encourage, and act as an early warning system for the ones you should be pulling away from. If you could benefit from help with these or any other credit issues you are experiencing we are here to help you in any way we can and we are just a phone call away.

Clear payment terms that are both enforceable and enforced.

Declan Flood

One of the secrets of excellent Credit Management is to be taken seriously. To be truly successful, getting paid has to be important to you and you have to communicate that importance to your customers. If they believe payment is not really important to you, you will find yourself at the bottom of their priority list.

One of the best ways to achieve this is to have clear terms that are clearly communicated. At the point of making the sale you should explain exactly how you do business, when they can expect the goods or services to be delivered and the standards they can expect. You need to explain your invoicing procedures and exactly when you expect to receive payment.

Having terms like “30 days” are not good enough as it can lead to confusion and they are not clear. Worse still is when I ask people what their terms are and they reply “well our terms are 30 days but nobody takes them seriously”. If you don’t, nobody else will.

Some people are of the opinion that because you are in business you have to give credit, this is not the case. You should only give credit if it helps you to sell more and your terms should be as short as possible without interfering with your overall competitiveness.

It you can get away with cash in advance – do it. If you can get people to pay up front before you supply the goods and service that is the best possible situation for you. Before you say that is unrealistic think, you pay for flights, for concert tickets, for books on Amazon in advance and it does not cause you a second thought, because these suppliers have done a great job to educate their customers as to how they do business. Do it if you can and do it whenever you can.

Second best is “cash on delivery” this has to mean exactly what is says and if the cash is not available the goods are not delivered. Most of the problem accounts in some businesses started out as cash sales that were never collected and a problem is born. If you say something mean it.

If they require time to pay, why not agree 7 days, 14 days or even 21 days? Be sure you are clear and be sure they understand you. If it has to be 30 days, is it 30 days from date of order, delivery, invoice or even end of month following invoice? If it is end of month, be clear “you should pay us at the end of August for all the goods we invoice in July” and then at the end of August make the call to make sure it is delivered.

Waiting for a month to send an invoice and waiting two more before you look for payment will send out the signals that the payment is not really important to you and your customers will act accordingly.

The clearer you are and the better you are at communicating this message through every single person in your company to every person in your customers company will increase your success, and your cash flow and your profitability.

It is vital to your business and your relationships with your customers that you get this one right. Good luck.