Credit Control

What is credit control?


It is basically what you do with the money that you have. For example it is used to pay people in different ways such as if you own a company you will pay your suppliers with it but they also need solvency to survive and this is being able to meet long term obligation with other companies and so on for the future but you will also should have liquidity and that is being able to make short term obligations. These are the two things that you will need to make your company thrive.

The risks and what happens if not used properly? 

Such risks you could come across is a company that is not what I said above and that is solvency and liquidity kind of company and if you come across something like that then you may not want to work with them for multiple reasons and one of them reasons is that can they provide the payments that you have agreed to in time because if they cant do that then it may put strain on the professional relationship and a strain on the deal it self.

Also has the company got good credit for you to fit in. Can they support the amount that you may need monthly. In this document it says has the company got good enough credit for you to have a certain amount of invoices each month and if the company can not afford what you want then you may need to cut down your payment terms.These are the kind of outcomes you may get if credit control is not used properly

How do you ensure you are paid in time? 

You can ensure you are paid on time is by making sure you have contact with your client through mobile or email and if you have this you can confirm the invoice directly with them to make sure there is no problems. You can also hire someone or a company to monitor your credit control or you can do it yourself by downloading a programme.

External and Internal Credit control system

Internal credit control is pretty much the money that comes into your business and it is a method that is used to make sure everything goes smoothly in your business and how it does that is by showing the true cost of everything and the costs on the side are the external costs which you don't see which is paid by society. As an example, if you own a car you are paying for things such as petrol and this is an external cost and the car is the internal cost because that is taken into account. This works the same in businesses, you may be paying an external cost after  you have paid the internal cost and that shows the true market price of the item  -reference

You can control your money by monitoring what goes in and out of your company and also by monitoring the stocks and assets you may own because if prices dip then you can sell before hand so you can get some what of a profit.


The kind of positives you may have with internal credit control is things such as it will help you achieve your objective because all the information you are getting is 100% correct and it safeguards your assets.

The kind of things that can go wrong if you do not control your costs is you can go into debt overtime because you are not looking at what goes in and out of your business and therefore you can fall into debt.

External Credit Control 

External credit control is pretty much working with people outside of your company and making sure you both reach some kind of deal that works for both parties and the way you can do this is by seeing how bad/good the credit is of who you are working with and from that you can make a judgement on if you should be working with them because if they have bad credit

If you are going to work with someone then you should probably look at their invoices to see how good their credit control is before you decide to jump into some sort of investment with them because if they happen to have bad credit control then you might be taking a risk of going bankrupt.

You could also run the risk of not having payments in on time and that can create tension within the partnership between both sides of the party.

Financing your company 

There is many different ways that you can finance your business such as bank loans that you may get that will involve getting a certain amount of money that you could use to kick start your business but when you get a bank loan of something such as £5,000 you may have to pay an extra £5,000 back in a certain amount of years. It varies depending on the deal you have made and the interest rate. Also if you do not pay it back you may lose your business and other assets you may own in some cases

In some cases you may be able to finance your business just by saving you may have saved up and a lot of people may go this way so they do not get into any kind of debt due to a bank loan or in some cases you can put some of your assets on the line and if you do not reach the agreed amount with a company or person you are working with within a certain period they may be able to take them assets off you.

• The legal status of small businesses i.e. sole trader, partnership

• The legal aspects of small business i.e. laws, regulations, health and safety

• The tax liabilities of small businesses i.e. how much tax do you need to pay, who do you pay it to?               

• Sources of finance for small businesses i.e. business loans, public funding etc.

• Financial systems suitable from small businesses i.e. software accounting systems, record keeping.

• How to control credit i.e. internal or external credit control system.

Evidence:

Please provide a research log and print outs from all of your research including annotations of your findings          

The finished work should be submitted to your tutor.