Your company isn’t a bank so don’t lend money to customers by letting them pay you late.
That said, the reality for many businesses is that they sell on credit terms and many customers don’t pay on time.
This puts pressure on the seller – less money in the bank, greater risk, increased anxiety and reduced profitability.
Where to start with credit control & management?
You have control over your own marketing, so from the start:
- try not to target bad credit risks – take out references from other suppliers or credit referencing agencies if you’re unsure.
- make prompt payment part of your marketing message and part of your sales process – set out your standard payment expectations in your Terms of Business and make sure each new client gets a copy.
- design products and services that encourage prompt payment – e.g. a monthly offering with a monthly invoice
- only sell on credit to customers who have signed a direct debit mandate
Prevention is better than cure.
Tips for Effective Credit Control
1. Invoice promptly, invoice correctly
Don’t give your customer an excuse to pay late by sending your invoices late or with errors in them.
Make sure you get the correct physical and email addresses to send invoices to and, if you need a purchase order number from your client, make sure you’ve got one upfront.
If you have a long-term project agree an invoicing schedule that allows frequent invoices to be sent and be prepared to stop work if one of them is not paid.
Be organised and, where you can, set up recurring invoices to be sent automatically by your accounting software.
And, of course, make sure you have delivered the agreed products and services!
2. Direct debit is your friend!
Direct debit services such as GoCardless are brilliant. They are cheap, automated and you get paid without lifting a finger.
And if a customer or prospect is unwilling to sign up to your direct debit service then think twice about whether you want them as a customer!
3. Know your debtors
Your accounting software will produce an Aged Debtors report. A list of how much each customer owes and how old those debts are.
Make sure your Aged Debtors report (sorted in order of the largest debtor down to the smallest) is shared with everyone who has a role in credit control – including your sales team.
They may well be able to manage the relationship with your client more fluidly and ensure that any old invoices are settled prior to repeat business being done.
What is a good credit control process?
Credit control is all about being organised and getting on the phone to slow payers – establish a credit control process and stick to it..
Your accounting software should send out statements to debtors by email and it’s important to do that at least once a month. You can also use credit control software or apps such as Chaser to do the routine emailing – saving you time and boosting your cashflow.
But if any customers still don’t pay then call them, as high up their organisation as you can, and tell them to pay. Sometimes a direct call can settle a misunderstanding or a signing off blockage.
And if that doesn’t work then stop providing products or services to them.
If you get to the point where you need to take legal action to recover your money then do so but it’s expensive, time-consuming and emotional. It may not be worth the effort.
Far better to take the steps outlined above so you don’t get to this stage.
However, if you do get to this point then make sure you have learnt from it and make changes to prevent any more bad debts.
How can Blue Dot Consulting help?
We’ve been working with business on how to improve their credit control and reduce bad debt for many years; helping them with:
- workflow – so that correct invoices are being sent on time
- management information – so that you always know your debtors and the impact of slow payers
- cashflow management
- implementing useful software such as GoCardless and Quickbooks