Many thousands of businesses go bust every year simply because they are owed money and can’t juggle the cash flow. A well planned credit control practices can avoid cash flow issues.
Liquid Recovery’s top tips for controlling your business’s credit control
1. Getting credit ratings
2. When getting references make sure you confirm the potential customer’s trading name and address. Ask how long the referee has dealt with the customer, what credit period they give the customer and whether they get paid on time.
3. Set an upper credit limit for each customer. This should be based on references and your own checking. Do not allow yourself to be bullied into giving more – you should never give more credit than you are prepared to risk.
4. Make sure you set a minimum order size for credit accounts. Keep control, and check if anyone tries to exceed the limit set. You must stick to the rules you set.
5. Credit terms must be understood. The terms will set out the maximum credit period i.e. how many days after the invoice payment is due, or whether there is a fixed day or month to pay on. If you have some review them and update them.
6. Consider offering a discount for quick payment if it is feasible. But this can be problematic as some customers may take the discount and still pay late!
Some companies find that offering regular rebates to regular good payers is more effective than discounts. These can be based on a percentage of the value of their purchase.
7. Develop good habits for every day credit control. These include:
• invoice promptly
• call to check that goods have arrived and customers are happy. Use this call as both good PR and to confirm the payment details
• keep unpaid sales invoices in date order, so you can see the oldest outstanding invoices
• have a regular slot each week to chase outstanding invoices. Always focus on the largest debts first, followed by the oldest. But also chase up early any customers you suspect may have problems paying. Don’t put it off. If you can’t do it yourself, get someone else on the case, but do not let the timescale slip. Make sure a note is made of the outcome of the conversation.
• invoice promptly
• call to check that goods have arrived and customers are happy. Use this call as both good PR and to confirm the payment details
• keep unpaid sales invoices in date order, so you can see the oldest outstanding invoices
• have a regular slot each week to chase outstanding invoices. Always focus on the largest debts first, followed by the oldest. But also chase up early any customers you suspect may have problems paying. Don’t put it off. If you can’t do it yourself, get someone else on the case, but do not let the timescale slip. Make sure a note is made of the outcome of the conversation.
8. Once a month the total credit outstanding across the whole of the business should be checked and recorded. This gives a good snapshot for now and a comparison for the future.
9. Habitual late payers play havoc with your credit control system. You soon get to know who they - call them just before the payment is due to confirm it will be on time. If it is not paid stop all credit until the debt is paid
.
10. Bounced cheques should be kept (as evidence) and the customer asked for a new one.
11. Have a system for chasing debts. Telephone late payers after a week and ask for a reason. Keep a written record of the conversations. If you can’t get hold of someone, try at different times of the day and send reminders out. Call regularly. You will hear plenty of excuses but have tactics to deal with them. For instance if you are told the cheque is in the post, ask for the cheque number. If the customer says they don’t have the money leave them in no doubt you will chase your money - and employ a debt collecting agency if necessary – which will end up costing them substantially more.
12. Be polite, persistent but never apologetic – it is your money and you are determined to get it.
