How To Improve Your Credit Control

If your business is struggling with late payments, there are several things that could be contributing to the problem. The good news is, most of those issues can be solved with proper credit control. Effective credit control is one of the most important parts of running a successful business – after all without money coming in on time, your business’s cash flow can suffer, and cause other problems as well.

But many businesses aren’t sure what their credit control system should look like, or how to implement it. At Debtcol this is one of the things we help our clients with, so today we’re going to break down the credit management process into four key stages, and provide tips on how to implement each one.

Before The Sale

Create a clear credit control procedure: This is the biggest and most important element. 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 an example for a business trading on 30-day trading terms could look like this:

Day 1: Send the invoice.

            Day 14: Make a courtesy call to check the client received it and confirm when payment is due.

            Day 28: Courtesy call to check on the status of the debt.

            Day 31: Send a reminder email to the customer that their payment is now overdue.

Day 37: Send a medium-impact letter explaining that payment is overdue, and that you have the right to charge interest under the Late Payment of Commercial Debts (Interest) Act 1998.

Day 43: Send a high-impact letter explaining that if not paid within 7 days, the debt will be passed onto a collection agency.

            Day 50: Hand the debt over to a debt collection agency.

Know your customer: Since late payments are sadly common in the current climate, it’s important to know your customer before you commit to working with them, or offering credit. This means running checks on prospects during the sales process, collecting all of their business information and running credit checks. This will help you understand the credit risk posed to your business, which can impact how you handle their account, how much credit you offer, or whether you require payment up-front.

Put together a stop list: Look through your records and pull out the names of customers who has persistently paid late, or who have a bad credit rating. Then put them on a ‘stop’ list. Any business on this list should be informed that no services or products will be provided until all outstanding invoices are settled, and potentially be required to pay up front for services in the future. This protects your business from a known risk, without losing customers.

After The Sale

Invoice on time: Make sure you are sending your invoices on time, and that they are accurate. They should contain all the information needed for the client to understand what the invoice is about, when it’s due and how to pay it. Make sure it’s sent to the right person too – you’d be surprised how often this stops clients from paying. This will prevent any delays in getting the invoice paid.

State your terms clearly: Your terms and conditions should be clear, and present on every form of correspondence you send out. This is so that the customer is fully aware of when payment is due and how you expect to be paid. Add a link to your T&Cs in your email footer, make terms clear on invoices, and ensure they are present and up to date on your website.

Keep relationships positive: Building a friendly and positive relationship with your customers can help hugely in credit control. It not only encourages them to buy more from you, but it improves your chances of getting paid on time. The more they like and respect you, the less likely they are to keep you waiting.

Make it easy to pay: Give your clients absolutely no excuse not to pay. Provide them with your bank details, and any other methods of payment you can accept to make it easy for them to pay quickly.

If Terms Are Broken

Review your ledger: A key aspect of credit control is to know exactly when an invoice exceeds its credit terms. Without this piece of information, your credit control department can’t do their job properly. Your sales ledger should be reviewed regularly so that you know when payments are overdue and other actions are triggered.

Update your forecasts: Once a debt goes over its credit terms, you will need to update your cashflow forecasts to reflect this. This is what helps you make sure you have enough funds to pay any bills due to go out and make sure your bottom line isn’t affected.

Chase quickly: Be prompt in taking action when your invoices are overdue. Don’t wait around hoping payment will come soon. Be polite in the early stages, and explain your company procedures to the client so they know exactly what will happen the longer they don’t pay you.

Bring in experts: If you get no response from your clients during your credit control process, don’t be afraid to bring in some experts to help you. As debts grow older, the more difficult they become to collect. If you feel you have done all you can to collect it, then it’s time for you to call in professional help.

Ongoing Credit Control

Review your performance: Once a quarter (or more if you want), take the time to assess your credit control performance and see if there are any areas for improvement. What in the process could be made more efficient? Are your credit terms up to scratch? How could you handle things differently? By regularly analysing how you’re performing, you can stay ahead and reduce late payments further.

Hire a credit controller: Credit control is an everyday task, and one that’s incredibly important to the success of your business. If you don’t have the capacity to hire a full-time credit controller in house, then you can also outsource the task. Many debt collection firms (including us) offer credit control services to help keep your business and cash flow operating smoothly.

If you have any questions about the credit control process, or would like to know more about how we can help, just get in touch with the Debtcol team and book your free consultation.