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How to Have a Credit Management Plan to Minimise Your Bad Debts

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Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.

If you are serious about good cash flow and increasing profits, you will need to make sure you have a good credit management plan. Credit management is the process for controlling and collecting payments from your customers. A good credit management system will help you reduce the amount of capital tied up with debtors (people who owe you money) and minimise your exposure to bad debts.

A credit management plan is a process you put in place to manage your creditors and your accounts receivables. Some questions you can ask are as follows:

  1. How do debt and credit affect my business?
  2. How can I maximize my cash flow?
  3. How do I handle customer excuses for late payments?
  4. Who would I use as a third party collection agency?

Your credit management plan should answer each of those questions.

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Some of the things you should include in your credit management plan are as follows:

  1. Terms and conditions.

Clearly state in writing your terms and conditions of trade and your credit policy in writing. Draft terms and conditions that suit your business. It is advised that you seek legal advice before finalising the document to ensure it has internal consistency and covers all the key issues.

Ensure the document does not contain any illegal terms and can be relied on in the event that court action is necessary to recover a debt. Include your terms on all quotes, estimates, contracts, agreements, purchase orders, and related documentation.

  1. Invoicing conditions

Include accurate details on your invoice for the goods or services supplied. The amount due along with the date and preferred payment method. Always try to resolve invoice queries or disputes quickly.

  1. Debtor Monitor System

Maintain your debtors’ records to identify any due or overdue debts. Develop a good records management system and keep records up to date so you can quickly identify who owes you money and how much they owed.

Take a proactive approach to credit management by contacting clients a few days before the due date to remind them a payment is due and ask if they foresee any problems with meeting their payment. Outsource to Debt Recoveries Australia the minute a debt becomes overdue and ensure clients do not exceed their credit limits.


Having a credit policy can help your cash flow smoothly and avoiding bad debt and loss of profits.

For help in getting a credit management plan together, call me at 1300 799 511. You may also email me at email@debtrecoveries.com.au or Skype at debtrecoveries.

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