Top 5 Credit Control Mistakes (And How To Avoid Them)

Effective credit control is crucial for maintaining healthy cash flow in any business, yet many companies, especially smaller ones or those just starting out, often make critical mistakes in managing it. From not having a formal credit policy to failing to understand their customers’ payment processes, these missteps can lead to delayed payments and strained client relationships. In this blog, we’ll explore some of the most common mistakes businesses make in credit control and offer actionable tips to help ensure smooth payment operations, keep cash flowing, and avoid unnecessary stress.

Not Having a Policy In Place

The biggest mistake businesses make is not having an actual credit control policy in place at all. When a business starts up they might think they can wing it with payment management, and that might work for a while. But as you get bigger, gain more clients and start working with bigger businesses, having no credit control policy will become a real problem. Set out a written, day-by-day strategy of credit management that runs from the moment the order is placed until the invoice is paid. This means that everyone can be on the same page about how to proceed and what actions need to be taken. The specifics will vary from business to business, but you can see a breakdown of what it should look like here. A good credit control policy doesn’t just protect your business, but your cashflow and your relationship with your clients.

Not Knowing What Your Customers Need

One of the things we see time and time again when invoices go unpaid is that the business assumed that all of their customers are the same, and therefore should be treated the same. Every business is different and runs in different ways, so this is a mindset that will definitely come back to bite you sooner or later.

It usually happens like this. You issue your invoice, and naturally you believe that the ball is in the customer’s court. But did you ask what information they need to be able to pay the invoice? It’s a simple question, but one that can cause significant headaches if you forget to ask it. A common example is the ‘stealth purchase order’. This is a purchase order that goes under the radar, stuck in processing because it’s not complete, all the while the invoice due date draws closer. Until that purchase order is approved your customer won’t be paying you a penny, but they might not let you know that, which leads to an awkward situation while you both wait for the other to take action. So ask the question and ask it early. Internal processes and communication almost always take longer than you expect, so the earlier you ask, the earlier you will get paid.

Chasing The Wrong Person

This happens surprisingly often, especially by finance teams. Things start out normally – you make a sale, deliver the goods and send the invoice. But time passes and the payment doesn’t arrive on time. So, your finance team emails the person who ordered – let’s call him John – to see what the hold up is.

The problem is, John has no idea. Days are wasted emailing back and forth before it’s clear that John just makes the order, and someone else in the business is responsible for actually getting things paid. He says he’s passed it to Kathy in accounting, and your chasing process has to start all over again. All the while your invoice is still unpaid.

It’s very common for the person who makes the purchase to not be the same person responsible for paying invoices. And the solution is, once again, very easy. Just ask the customer who you need to address the invoice to, and who the right person is to speak to about follow up. It only takes a few seconds, but it can save you a tonne of time!

Not Knowing Your Customer’s Payment Dates

In the age of internet banking, many customers can do payments quickly and whenever they are needed. But a lot of businesses have a set payment schedule for invoices, and it’s really helpful to know this in advance. If they only do a payment run every other Friday and your invoice falls due on the middle Thursday, you could be waiting and chasing a while, even though the client thinks they’ve got it sorted. This one, again, can be avoided by asking a really simple question – ‘when are your payment dates’. Being armed with this kind of knowledge lets you know exactly when to get an invoice in your customer’s hands and make sure you get paid as soon as possible.

Taking on More Than You Can Handle Alone

Have you ever noticed how, in horror movies, the person who goes off on their own inevitably ends up screaming first? It’s the same for credit control. Trying to tackle a huge amount of work on your own can be too much, especially managing an effective credit control strategy, which can be challenging and time-consuming. And that’s before you add in the time it takes to chase payments! So if you don’t have the resources, don’t try to do everything on your own. After all, if you’re spending lots of time on overdue invoices then it’s less time you could be spending on sales, support and other growth activities. Instead, use the services of a debt collection agency to provide credit control and debt collection, freeing up your time and energy for other things.

Effective credit control is more than just a financial task—it’s a strategic element of running a successful business. By establishing a clear policy, understanding your customers’ needs, and ensuring you have the right processes in place, you can significantly reduce payment delays and maintain strong client relationships. Remember, credit control doesn’t have to be a solo endeavour. If you’re struggling to manage it all, don’t hesitate to seek external help to keep your focus on growing your business while ensuring timely payments.