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Helpful steps to improve credit control
18 Jun

An important element of healthy cash flow is the credit control process. Smaller businesses in the UK have historically struggled to recover payments, especially from larger clients.

To help, the Government has tried to introduce new legislation. However, in many cases, it has lacked the bite to be effective.

It is, therefore, often up to small business owners to improve their credit control on their own, especially during this difficult period.

To help, we have outlined some of the steps that businesses should consider taking in the coming months to improve credit control.

Create or review existing credit control procedures

Businesses should have a clear and coordinated procedure for credit control, which is followed for every sale it processes.

It should establish a realistic timetable, including all the stages that need to be completed by various team members within your business and outline credit terms that should be based on the needs of the business.

Once these elements are in place, a business can then prepare a process for chasing payments, including a schedule for sending reminders, including an initial notice of prompt payment, followed by letters, emails and phone calls.

This process should also establish when it might be necessary to pass a debt over to a reliable, commercial debt collection agency.

Having a record of this process ensures that all the parties to a sale are aware of the terms and conditions and, in addition, will help to reduce the problems associated with late payment before they even occur.

Research new clients

A small amount of due-diligence beforehand can help to streamline the credit control process. Undertaking a simple credit report on a new customer can help to reveal if they have had any issues making payments previously and identify which businesses pose the greatest risk to cash flow.

Credit checks can be conducted quickly and cost-effectively online and, in most cases, you will only need a company’s:

• Full trading name
• Registration number
• Address(es)
• Key contact details

Undertaking these checks is no guarantee of payment, of course, but it allows a business to make informed decisions about the terms and conditions associated with each transaction.

As part of this review process, it is worth creating a watch list of potential late payers who can be carefully monitored so that action can be taken to prevent late payment.

Foster positive working relationships

Obtaining payment isn’t just a process of making demands or threats. Creating a lasting, positive relationship and clear channels of communication can go a long way in helping to obtain timely payments.

It doesn’t hurt to make courtesy calls to confirm receipt of paperwork or in advance of the invoice due date. This shows that a business is friendly and professional and allows a customer to give prior warning of late payment.

Be quick, be accurate

It isn’t just the responsibility of customers to ensure payments aren’t late. Ensuring your invoicing procedures are effective can make a massive difference. It is recommended that businesses:

• Send invoices as soon as orders are fulfilled
• Email or send invoices electronically rather than sending by post
• Ensure that the invoice is addressed to the right person
• Make sure that there are no mistakes in the invoices
• Confirm that the invoice has been received.

Acting early prevents delay and helps to build a rapport with your customer.

Incentivise

Businesses struggling with late payments could look to add incentives to the credit-control process.

This could be something as simple as offering early settlement discounts to customers that are known for late payments that kick in when they pay within the agreed credit terms.

While this may seem like rewarding bad behaviour, it may mean that your business is paid sooner. These incentives can also be incorporated into your pricing structure so that profit margins are not affected.

Make payments easier

There has never been more choice when it comes to payment methods, so businesses should make sure that they can offer as many as possible. This may include:

• BACS
• Credit/debit card
• Cash
• Online payments, such as Stripe and PayPal

Seek support and advice

If your business is continually blighted by late payments and you are struggling to deal with the burden of credit control then it may make more sense and be more cost-effective to seek out professional support.

Outsourcing your credit control to an accountant could drastically improve your chances of being paid on time and it should give you an idea of how your cash flow is affected by expected late payments.

This will help you to make informed decisions about your business that allow you to plan for future investment or make necessary cost cuts.