How to Use Your ERP Platform to Help Keep on Top of Rising Customer Credit

Offering goods and services on credit is an essential part of running a business in the B2B market. It allows your clients to thrive and expand, which is in turn good for you as a supplier. But this model comes with its own risks and can have a negative impact on your profits and your cash flow.

One way to ensure the situation doesn't get out of control is to make full use of your enterprise resource planning (ERP) software. Utilizing the built-in tools effectively will help you make wise credit control decisions and prevent your own business from being put in jeopardy due to unpaid invoices.

The realities of extending customer credit

• Extending credit in the B2B world is unavoidable if you don’t want your customers to go elsewhere
• It’s your responsibility to ensure customer credit controls are in place to prevent a spiralling situation that impacts your cash flow
• Your ERP platform can be used to create checks, set reminders and automate the process

Types of credit control policy

Defining your credit control policy from the start is vital in order to understand how your business will be run. There are a number of factors that play into the decision to offer different arrangements, from the resources at your disposal to how appealing your standpoint will be to potential customers.

1. Restrictive credit control policy

This approach comes with the lowest amount of risk and is often adopted by business owners with limited cash flow. It also works well for companies that have a monopoly on the market and know they’re less likely to lose their clients to their competitors.

2. Moderate credit control policy

If you’re keen to expand your business and are in a position where you can take on more risk, a moderate policy may apply. This route can help you appeal to organizations that are only deemed to have mediocre creditworthiness and therefore have limited options.

3. Liberal credit control policy

Only the biggest companies with the ability to absorb risk can afford to adopt a liberal approach to their credit control practices. In doing so, they increase their market share and can grow exponentially knowing all types of customers can work with them.

Track your customers’ real-time credit standing

Before extending credit to any organization, it’s vital your potential customer completes a credit application. This must be followed up with due diligence measures, such as contacting their trade references, gathering information from credit agencies and requesting recent financial statements.

Once these initial checks have been carried out, you can then use your ERP platform to see your customers’ credit status in real time. Everything from agreed payment terms, credit limits, balance due amounts and open orders, available credit, average days to pay and percentage over limit allowed should be displayed at a glance.

Accessible information for everyone

Every department of your organization can access the client information stored on the ERP platform. This offers a level of unparalleled consistency and transparency, meaning no area of the business should be making decisions about extending credit without having all the details at their disposal.

A simple and easy-to-use interface makes collating the information efficient, minimizing the opportunity for mistakes or an erroneous interpretation of the facts. This means customers can expect a consistent approach from all areas of your business each and every time.

Use your ERP software to automate reminders

All of the credit data stored within your ERP software makes automating payment reminders efficient. While it can feel jarring to the customer relationship to ask for money, leaving it to the system means you don’t have to think about it and every organization is treated fairly.

This means your clients will get used to having regular reminders that payments are due, notifications when invoices have not been paid on time and urgent calls to settle debt. Such automation means faster payment processing and cuts down on the risk of bad debt accumulating.

Create comprehensive reports

ERP software can be used to create regular reports based on all the data saved within the system. Analyze these reports to gain a better understanding of clients who delay payments and their behavior patterns. This information will help you to tweak your credit control policies for customers that don’t pay on time and plan for the future of their accounts.

These reports should also inform the development of strategies for determining when to extend credit. The more you know about the types of organizations you work with and what is expected in different industries, the better you can forecast invoice payments and ensure you’re not putting undue stress on your own company.

Minimize bad debt and maintain cash flow

Armed with all the information about your customers’ past dealings, their real-time situation with you and forecasts for the future, you can stay in control. You can make informed decisions that decrease the chances of bad debt accumulating and show how circumstances may affect your cash flow ahead of time.

Your ERP system should notify you when a client exceeds their credit limit. This enables you to prevent it from spiralling out of control. Letting customers rack up large amounts of credit is not beneficial to your business relationship, so managing it through your ERP is best for all parties.