Credit control is an essential part of running a successful business, especially in today’s climate as daily costs continue to increase.
Effective credit control (or in other words, making sure your customers pay you on time) helps your business maintain predictable cash flow, reduce bad debts, and improve your overall financial health.
Why Does Credit Control Matter?
Cash flow is the lifeblood of any business. Without enough cash coming in, you may struggle to pay bills, buy inventory, or invest in growth opportunities. Credit control allows you to do these things more easily as you can be more confident of when cash from the sales you make will hit your business bank account.
As well as improving cash flow, credit control reduces bad debts. Bad debts are any form of money owed that’s highly unlikely to be paid by the customer or client. Either because they can’t pay due to their circumstances or are unwilling to.
It goes without saying that bad debts can be a significant problem for many business owners, as a loss of income means an increase in overall financial risk. Whilst you can’t always avoid bad debts, if you actively keep your accounts up to date, you can identify potential bad debts early on and take steps to mitigate the risk or recover the loss elsewhere.
Now onto our top credit control tips…
1: Establish Clear Credit Control Policies and Procedures
The first critical step in creating effective credit control is to establish clear policies and procedures. Communicate these clearly to customers before you start work, with information on payment terms, credit limits, and consequences of late payment e.g. interest charges. Everyone should be on the same page and understand when payments are due and how to pay.
Ensure that your credit policies and procedures are consistent across your business. This will help reduce confusion and disputes, both internally and with customers.
2: Conduct Credit Checks
It may sound extreme, but It’s a good idea to credit check a client before you make any agreements with them. A credit check will help you to determine their overall risk profile and set appropriate credit limits.
Credit checks can be conducted using sources such as credit reference agencies, financial statements, and trade references. This will reduce the risk of bad debts and ensure that you are extending credit to customers who are likely to pay you on time.
If you don’t want to do a full credit check, it’s still a good idea to do some investigatory work and speak with other business owners who’ve worked with them before. This way you’ll know if they have a record of non-payment.
3: Invoice Promptly and Clearly
Issue all invoices promptly after a sale has been made. Include all of the relevant information such as the products or services provided, the payment terms, and any discounts or incentives offered.
Your invoices should also include clear instructions on how and where to make payments. If your invoice isn’t clear, it could potentially cause confusion and cause delay in payment if the recipient needs to contact you to ask for clarification. Get it right the first time and it will help to ensure that you get paid on time.
Don’t be afraid to chase a late payment, we know it can be daunting, but it’s money you’re owed! It’s better to have an awkward conversation than ignoring the late payment and silently hoping it’ll appear in your bank account soon.
4: Follow Up Promptly on Overdue Payments
We know it can be uncomfortable, but do not ignore an overdue payment. If you’ve followed the previous steps, your customer is well aware of how to pay, when to pay, and the consequences if they are late.
When a payment is overdue, you can resend your policy to any first-time offenders, or give them a gentle reminder of your terms and remind them that they’re now overdue!
If your late payment emails are ignored, pick up the phone and try to speak to the individual or business that owes you money. In worst case scenarios, you can contact and work with debt collection agencies, but this should be your last resort having tried and failed to rectify the situation.
5: Monitor Accounts Receivable Regularly
We preach this constantly, but you should really stay up to date with your accounts and make an effort to know your numbers. When it comes to credit control, being up to date with your accounts means identifying customers who are consistently late in paying.
Establish clear processes for monitoring your accounts, do some regular reporting and analysis of payment trends. This way you will identify potential issues early on and take action to address them. You’ll also be able to backlist any troublemakers!
6: Use Technology to Streamline Credit Control
Technology is a valuable tool for streamlining credit control. Using tech means you can automate invoicing, payment reminders, and debt collection.
You can therefore massively reduce the administrative burden of credit control and ensure that your processes are as efficient and effective as they can be. If you’d like to chat about this more, we have some recommendations!
Ready to Get Paid on Time!?
Let’s chat, we have a credit control service that takes care of everything we’ve covered in this blog. We can’t completely erase late payments, but we can help you identify trends, evaluate risk and reduce the need for those awkward conversations.
