Credit control involves monitoring customer accounts and motivating customers to pay outstanding invoices through statements, debtor letters, phone calls and, perhaps, sanctions. Finally, you may have to write off the debt of a customer who finds they are unable to pay their outstanding invoices.
You will have your own approach to credit control and there are a number of features within Sage 200 to help you monitor and take any necessary actions.
The basis of your credit control
Three items underpin the credit control features in Sage 200:
Payment terms are linked to individual customer records and determine how invoice due dates are calculated.
They comprise a number of days and a start point for the calculation. Example payment terms you could employ:
- 25 days from document date.
- 30 days from start of month.
Each time you enter a customer invoice, Sage 200 uses the customer's payment terms to calculate the date by which payment for that invoice is expected.
Ageing periods group outstanding transactions by the length of time that has passed since they were initially posted. You can set between three and eight separate periods. Each period is a specific number of days. A typical set is three periods of 30, 60 and 90 days.
Transactions are aged from the date they are entered onto the system. It is normal to set the date of the first period to be the same as the number of days in your payment terms. That way, the first period on your Aged Debtors report would contain only those transactions that are not yet due for payment.
Your ageing periods, and the transactions that fall into them, are printed onto:
- Aged Debt reports
- Customer statements
Due date periods mark the escalation points for transactions that have passed their due dates. You can have three to eight separate due date periods and can link a debtor letter template to each of your due date periods.
The due date is calculated from the day an invoice is due to be paid. Due date periods, and the transactions that fall into them, are printed onto:
- Due Date reports
- Debtor letters
In this example the customer payment period is 30 days from document date and there are three ageing periods:
| Ageing Period | Debtors periods start (days after transaction posted) | Due date periods (days after transaction due date) |
|---|---|---|
|
1 |
30 | 1 |
|
2 |
60 |
31 |
|
3 |
90 |
61 |
Monitoring customer debt
There are a number of reports and enquiry screens you can use to monitor the total levels of debt you are carrying across all your customers to view the detail of a single customer's outstanding debt.
To monitor total debt levels use:
- Aged Debtors reports. There are detailed and summary versions of this report.
To examine a single customer's debt use:
- The Credit Control Workspace.
Motivating customers to pay
To motivate customers to pay outstanding debt you can send them statements and debtor letters.
Statements list the transactions that are outstanding on a customer's account.
Debtor letters are linked to the age of the customer's oldest outstanding transaction. You set up debtor letter templates of increasing severity and link them to the due date periods you have defined. That way, debtor letters are only produced for actual outstanding debts and the severity of the letter generated is aligned to the age of the oldest debt of the customer.
Your payment period is 30 days.
| Due Date Period | Debtor letter | Severity |
|---|---|---|
|
1 - 1 day after due date |
1 |
Initial reminder |
|
2 - 31 days after due date |
2 |
Demand for payment linked to reduction of their credit limit. |
|
3 - 91 days after due date |
3 |
Final demand with account put on hold. |
Let's say a customer has three outstanding invoices:
- Unpaid 92 days after due date - £100.
- Unpaid 35 days after due date - £50.
- Recent invoice, within payment term - £250.
If you generated a debtor letter for this customer, Sage 200 would select debtor letter 3, based on the age of the oldest outstanding transaction. The letter would contain the details of the first and second transactions listed above - those outstanding. The other transaction, still within its payment term, would not be detailed on the debtor letter.
If you produced a statement instead, all three transactions would be detailed on it.
Sanctioning a non-paying customer
If a customer does not address an outstanding debt you can temporarily:
- Reduce their credit limit or payment terms.
- Put the account on hold so no further invoices can be raised.
You could link these actions to the production of your debtor letters so that when debts reach a certain age you generate a letter and apply the sanction to the customer account.
Write off the entire customer account
When it becomes clear that a customer is not able to pay outstanding invoices and you have paid the VAT on those invoices, you can write off the debt and claim back from HMRC any VAT you have paid. Alternatively, you can write off the entire account without claiming back any VAT you have paid.
See Dealing with customer bad debt.
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