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From |
Details |
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Credit Reference Agencies |
Credit information on companies |
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Bank |
Payment Information |
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Accounting Package |
Client Balance information |
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Production System |
Order / Invoice-able charges information |
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Clients |
Communication regarding payments |
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Sales Department |
Request for credit authorisation / terms for (new) client(s) |
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Senior Management |
Approvals for credit term breaches Approvals for credit terms / credit term adjustment(s) |
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To |
Details |
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Client |
Credit Terms Notification of credit breach Response to queries Additional information to expedite payments |
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Sales Department Production Managers Senior Managers |
Notification of concern over client payment behaviour Notification of credit breaches
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Accounts Package |
Client Credit Term creation / adjustment Bank Balance information |
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Production System |
Client Balance Data Client Credit Status |
Accounts department sets TOT's credit policy with respect to clients:-
Credit Limit
Payment Terms
Authorisation / Approval process for alterations to the above
Client credit terms are decided based on
Credit searches
Client Payment History information
Information/ limit recommendation from reference agencies (TOT uses Experian)
Any other pertinent information sources
If terms requested by the client are outside reference agency recommendations, Accounts staff refer the request to senior management
For new clients which have credit terms established, Accounts staff subscribe to the Agency Alerts notification
(Recommend this is done for all clients with credit terms)
Credit terms are communicated to the client
Credit terms are recorded in the accounting package and fed back to the production system (credit limit; payment due)
Following on from the above, Accounts department receive Credit Alert information for subscribed-to-clients from the reference agency via email
Where an alert / concerning information is received for a client, the Accounts department can act on the information in consultation with Senior Management
If appropriate, the Accounts department can adjust credit limit / payment terms in the accounting package which should update the internal Production system
If the client credit / payment position / concern is significant enough, the Accounts department can place the client on hold:-
This means no additional work is to be undertaken for the client
Any work in progress should not be despatched to the client without Accounts / Senior Management authorisation
Accounts department update a client level flag in the production system to indicate on hold status. This causes the client record to be formatted in red to indicate the position
Following on from the above, as well as updating the production system, the Accounts department notify the following department managers of the client credit status
Sales Department
Production Administration
Production Management
Despatch Management
Senior Managers
The communication instructs that no billable work should be undertaken or despatched if completed without Accounts / Senior Management approval until the credit position is resolved.
Additionally, no additional work should be agreed to or orders accepted until the situation is resolved
Aged Debtor report is generated from the accounting package (Tues or Weds)
This report breaks down for each customer their credit limit, total balance which is then broken out into current and aged (30/60/90/90+) buckets
Accounts staff review this report to identify customers who have debt outside terms
Accounts staff use this to highlight / escalate any clients of concern -
This process forms part of Perform regular (weekly) comprehensive credit control.
On the purchase side of the balance sheet, the Accounts Department establish payment (credit ) terms with key suppliers
It is advantageous for TOT to negotiate longer duration terms with suppliers so any cash flow / funding gaps between sales receipts and purchase payments are mitigated
Supplier payment terms are ultimately decided by the supplier, but TOT Accounts will seek to leverage their order turnover to achieve favourable terms
A key aspect of credit control is to invoice clients as early as possible to minimise the time period between service provision and payment
This is especially important for higher value orders where the funding gap between paying suppliers and receiving sales payment can materially affect cashflow
Therefore, the accounts department invoice daily as soon as the order is in an invoiceable state
Current process is that Invoice information (is essence an invoice) is fed overnight from FileMaker to Sage when the record is marked as completed in FileMaker
Accounts staff interrogate the accounts package to filter for newly received invoices and issue these as a priority task
There is an exception that is noteworthy. Some clients will not recognise an invoice from TOT unless it contains the customer internal PO reference. The challenge on this from a timing perspective is that the same customers will not inform TOT of the actual PO reference for their order until they receive a copy of the invoice so that they can validate the order and charges. To expedite this process as much as possible, for these clients, Accounts staff interrogate the FM system and extract and send to the respective client invoices that are to all intents and purposes ready to invoice but require client level PO references. - and this is time / date stamped. Once the client responds with the reference information, this is manually added to the FM invoice data and the record marked as ready to invoice so feeds overnight. Once the "official" invoice is received in Sage, it is emailed to the client, but the issue date is tagged as the date it was initially sent from FM.
The accounts package records by customer the average days elapsed between invoice issue and payment (Days Sales Outstanding - DOS). This information could be extracted /analysed to identify
Customers with a D.O.S. that is not acceptable and prioritising them for review / communication.
What the average D.O.S is for TOT's active client base and how this compares to comparable businesses
Setting D.O.S mertrics and monitoring progress
As part of the Aged Debtor review,all aged balances that meet either of the following criteria are highlighted :-
Balance >= Credit Limit.
Aged balances which exceed payment terms.
For each client identified above, action is taken:-
Clients are contacted to make payments / ascertain reason(s) why payment is delayed
If necessary additional information is provided to clients
If client queries are raised regarding charges / orders - these are fielded to the relevant departments
The report is annotated to record what action was taken
If there is any concern with client responses - the issues is escalated to senior management
The report once annotated is provided to accounts manager and senior management on request.
Accounts staff are regularly contacted by clients requesting additional information to assist in making payments
Re-submission of invoices / statements
Clarification of charges
Account balances / payment terms
To expedite client payments and negate outstanding information requests preventing invoice settlement, accounts staff service these requests.
Where possible, clients can be referred to cport for invoice copies , current balance levels. However, invoice paid data is no longer held in FMP so cannot be exposed to cport
These items are draft / placeholder currently to ensure they are captured for assessment into project scope
At present balance information is back filled from accounts package to the FM production system
Similarly,credit on hold status is retrospectively applied to the FM production system once identified in the Accounts Package
Both the above are not real time
A future state should incorporate real time credit approval:-
Order Acceptance
Before accepting an order / quotation an automated call should be made to credit module to establish an approval process based on an evaluation
Do credit terms exist
Is the client within terms
Is the client within payment terms
If any of the above checks fail - the order should require additional approval / be accepted provisionally contingent upon breach corrections
Assuming the above checks are passed, subsidiary checks should be
Will the value of the order cause a credit line breach
Again if fail - require additional authorisation / action
A similar call should be made prior to the commencement of producing an order and before despatching goods
This is particularly pertinent for clients who do not have a credit limit and therefore pre-pay for an order based on the quotation amount. Should there by any changes to the order post payment that increase the customers invoiceable amount (garment changes and/or despatch costs), this needs to be identified by credit control process to ensure the differential amount is paid before the order is completed / despatched
Real Time Accounts Credit Information
Currently balance information is backfilled overnight from the accounts package - moving this to a trigger / real time basis would minimise the potential for unsecured exposure
Ditto with term breaches - these should be automated from the accounts package to the Production System in real time
Consideration should also be given to automatic notification of senior managers immediately upon breach occurrence -