Your sales ledger is important because, amongst other items, it lists all of your sales transactions which account for a significant percentage of your business assets. Managing this asset properly is at the heart of proper credit control. The ledger should detail all invoices raised with payments made against them as well as credit notes issued and account "write offs", where appropriate. It almost goes without saying that the sales ledger should contain the customer's name and address with a unique account reference for each sales account.
It is a good idea to maintain a permanent record against your customers to include the following:-
- Bank and trade reference (if these were taken up)
- Any status reports, account opening application
It is important to maintain this customer file accurately. So, for example, if new terms and conditions are agreed the updated version of these should be kept on the file.
It is important for your invoices to be issued as quickly as possible. Until such time as your customer receives them no payment will be made. The credit cycle will only really start to commence once your customer is in receipt of the invoice for the goods and services supplied.
Statements of Account
Statements of account are, in effect, a record of transactions with a customer over a given period of time. These should also be issued accurately and at regular intervals. They should disclose precisely what the customer owes and these should take into account any credit notes, discount available and cash received.
On the assumption that you have set a credit limit for a particular customer you should ensure that any amounts outstanding are within the allocated limit set. The essential question is one of being alerted as to whether credit limits are being exceeded. This does not mean to say credit limits should not be exceeded. The golden rule is that companies should be aware what is happening with each particular customer and alert to the fact whether or not credit limits are being exceeded and, if so, what action, if any, should be taken.
If any invoices are subject to dispute then these should be clearly marked on the sales ledger. Chasing payment of an outstanding account subject to dispute really clouds the waters. Accounts subject to dispute should be dealt with quickly and courteously. It will reflect positively on your company that such matters are dealt with efficiently. Pursuing accounts subject to a dispute can severely adversely affect the collection process as many customers will withhold payment of an entire amount due contained within a statement of account where certain items of account are the subject of a dispute.
Overview of credit policy
A company should have a clear credit policy agreed amongst its directors, credit management. This should also be made available to the sales force on what basis the company will offer credit and how outstanding monies due to the company are to be dealt with.
This can, at best be contained within a credit manual which should address such items as the following:
- How customers are to be assessed for credit.
- How new accounts are to be opened.
- At what stage accounts are to be invoiced.
- How outstanding accounts are to be collected.
- Sample documents can also usefully be included such as terms and conditions of trading, account opening application forms and various credit control collection letters.
- Details of when telephone calls should be made in respect of outstanding accounts and the cycle of making such calls and the in what circumstances personal visits to customers' premises should be made by staff for account collection purposes.