Why Your Small Business Is NOT Too Small to Have a Credit Policy, Processes and Procedures
It’s your business and you have all these plans and aspirations for its future growth. You get to decide what you want to do, who with, how and when you’re going to do it. It’s all in your head, isn’t it!
So how does that work once there’s more than just you in your business?
Even if you’re the only direct employee of your business, if you outsource any aspect of it, then there’s more than you involved in it.
Small businesses in the UK very rarely have documented, policies, processes, and procedures.
I’m guessing if you don’t have documented processes it’s because:
- It’s too much of a faff to write them down and keep them updated
- You think you don’t need them – everyone knows what they’re doing…right?
- Having to follow a process stifles creativity and slows things down
What Will Not Having Policies, Processes and Procedures Cost You?
Not having written policies, processes and procedures however have consequences:
- Hours and hours get wasted on a regular basis by going off on a tangent.
- Individuals will go ‘off-piste’ because they think their way is better, without any regard for the wider impact on the business. They may even be breaking the law!
- Costly mistakes get made with no way to analyse and learn from them.
- Staff training will be unstructured and inconsistent.
- Customers may get an inconsistent experience which can erode trust.
- No one is accountable for their actions so it’s hard to get to the source of a problem and stop it happening again.
- Without specific processes how can you work towards your goals?
- You end up doing everything yourself because it’s easier, but you don’t have the time.
- An individual’s productivity is difficult to measure, some people will be coasting while others put in all the effort.
- You can’t take a holiday as no one else knows what to do.
- You could limit your access to Finance or Credit Insurance. Many providers expect to see your Credit Policy and Credit Control Procedures as part of their risk assessment.
Absence of policies, processes and procedures means you have no idea why things go wrong, or, for that matter, why other things go right! Ultimately, without an effective strategy, focus and direction it’s simply impossible to scale up your business successfully.
So, What’s the Difference?
Policies (Strategy) are the rules or guidelines for a specific area of your business, in this case, the granting of trade credit to customers. A Credit Policy is a high-level document and will include things like risk appetite, responsibilities, and consequences.
Processes (Focus) are the high-level views of how to administer the policies. A process could be a simple list of activities or a process flow map. It is what you do, not how you do it. You could have processes for onboarding new customers, invoice production and credit control, amongst others.
Procedures (Direction) are the detailed steps required to perform an activity within a process, i.e. how you do it. Think of them as step by step instructions, often incorporated into a manual, such as a Credit Control Procedures Manual.
All three of these, whilst separate, need to exist for a system to work. It’s difficult for anyone to know what is expected of them and how to do it without having each of them as a point of reference.
Really it’s all about good communication, and setting out the standards to be upheld in the business.
Putting it into Practice
Policies, processes, and procedures need to be reviewed and updated at least annually to make improvements and keep them relevant.
They are not just documents to be created and then filed away never again to see the light of day. Every employee should be aware of and understand all that are relevant to their role. After all, they will be held accountable for any breaches.
Carefully consider relevance. It’s important that any sales team members understand the credit policy, processes and procedures as they will have an impact on the conversations they will be having with prospects and customers alike. Don’t limit circulation to just the Finance team.
If it all seems a bit overwhelming and you’d like some help writing your credit policy, processes and procedures then why not book a call and we can get you started.