Credit control – prevention better than cure
Mismanagement of cash flow is the single biggest reason that businesses ‘go under’. Maintaining consistent cash flow, avoiding bad debt and minimising late payments are all essential for business survival.
Overdue payments can be crippling for any business. Customers have a right to receive goods or services within agreed deadlines, but it is also your right to be paid on time. Good commercial practice starts with effective credit control procedures to protect your revenue. The cost of not protecting your business can be high and lead to reduced profitability, cash flow problems and even insolvency.
Here are a few tips on best practice.
Know your customers
It is important to build a clear picture of your customers. You can do this is by carrying out credit checks which can be done online for a small charge. Information on carrying out checks is available free of charge from the Companies House website.
Trade on your terms
By drawing up Terms & Conditions, you can ensure that you trade on your terms and not those of your customers, for example a 30 day payment period or interest on late payment. By including an interest clause in your Terms & Conditions, you can claim interest as soon as a debt becomes overdue.
Send invoices promptly
Where possible; send all invoices out the same day as you process the order or when goods are sent or delivered.
Start an automatic reminder procedure
Flag invoices that are due and send/email reminders and monthly statements.
Pursue your debts, but don’t lose customers in the process!
There is a delicate balance to strike here, overdue invoices must be pursued but without offending your customers and potentially losing their business in future. You should start with gentle reminders to your client, by telephone/email or writing.
They are your customers so you are in the best position to judge the level of tact needed. That said, don’t be afraid to pursue an unpaid invoice and the money you are owed.
Be relentless when attempting debt collection
Don’t let some customers abuse your goodwill by deliberately delaying payment. Late-payment and non-payment are habitual behaviors. Late paying customers are unlikely to change their attitude without the pressure to do so.
Put an account on hold
If a client persistently stalls payments let them know that you will stop work or continue to supply goods if they fail to settle their account.
In order to provide flexibility to clients, offer monthly payment plans or credit/debit card payment facilities
Take legal action on problem payers
If you have tried all the above then take out court action.
Thank reliable payers when you can
These clients are the lifeblood of your company.
Educate yourself and your staff with credit control training.
Customers are more likely to be impressed than irritated if you take a professional approach to credit control. If they are annoyed or embarrassed it may be because they have something to hide – all the more reason to stick to a professional approach.
For advice on effectively managing your credit control contact Robina Element.