Credit Control - get it under control

Credit Control should always be a top priority in your business, yet all too often the "sale" is seen as the main driver. The sale, regardless of profit, is only realised when the invoice is paid.

As we enter uncertain times for all businesses in 2023, it's time to REALLY make sure your credit control is up to scratch. Good credit control is NOT aggressively chasing money, when it gets to that stage, there is no "good credit control".

When my business failed in 2013, we had the same credit rating as Marks and Spencer. Many in the industry were surprised at the failure, despite several years of challenges. Lesson Number ONE - beware of relying on accounts from Companies House. That data can be too old to be relative.

A good credit reference agency such as Creditsafe can be helpful as they can alert you to several key changing financial factors, including other suppliers noting payment histories.

You can however protect your business by taking a number of sensible steps from day one of a business relationship. These include:-

1) Setting credit limits and monitoring those limits carefully. Avoid setting credit limits too high - it defeats the purpose of having them.

2) Consider a non credit option. More and more businesses are now offering favourable prices for pre-paid work, some businesses no longer offer credit now. This is very much industry specific.

3) Trade References can be helpful, although you're unlikely to be given the name of any supplier who's overdue large sums of money! Be warned!

4) Create your own "Credit Control System" - the details below have been helpful to a number of businesses recently. There is no "one size fits all" when it comes to credit control. CREATE your OWN, systemise the majority and humanise the exception - some WILL need rules bent.

5) Avoid getting sucked in to their payment terms. If your terms are nett 30 days, then why should you wait 90 days to be paid? This is a choice for you as the business owner, however, don't be too quick to simply accept their terms.

Your Credit Control System

1) Invoice as soon as you can. This could be on delivery of a product or service or at a pre-determined milestone. Whatever it is - get that invoice done and sent as soon as possible. Most invoices are sent via email now.

2) As soon as the invoice is sent, contact the company / person to make sure they have received the invoice, and the details are correct. This prevents the annoying excuses of incorrect details or incorrect amounts when the invoice is past due. Make sure you include PO's and references on ALL invoices.

3) When invoicing electronically, which most are, be sure to add a "Pay Here" button or link and avoid that having to create an account. Make it EASY for people to pay you.

4) Make it EASY for people to pay you. Most will pay by bank transfer, some may pay by credit card, so make sure you accept them ALL. All major cards and American Express, Paypal etc. Do you offer credit services such as Klarna? Why should you carry the risk?

5) A week BEFORE the invoice is due, send out a polite reminder that the invoice is BECOMING due and when could payment be expected. Include the payment link again.

6) When the invoice has just gone passed due, send out the first reminder. As above, that's a polite reminder and includes the payment link.

7) Business owners now need to create their own templates and dates for invoices that are overdue. These are down to individual preference. What we have seen to be effective is a series of SIX letters. 1) Polite reminder that the invoice is now due, asking when payment can be expected. (1-2 weeks) 2) Second reminder that the invoice is now overdue (2-3 weeks). 3) Third reminder that the invoice is now considerably passed agreed payment terms and future supplies may now be affected (4-6 weeks). 4) Fourth reminder is now stating that unless payment is received or a satisfactory payment schedule agreed that further collection methods will be used (6-8) weeks. 5) A week or so after no.4, a 7 day letter of notification of court proceedings (or intended action). 6) A week after no.5 a letter confirming that action has now begun and that payment of the principal amount is no longer sufficient to clear the debt as costs (including interest) have accumulated.

8) Don't hide behind letters and emails. A CONVERSATION in many cases is all that's needed to get payment. Letters are too easy to ignore.

Don't accept "I don't have the money" as an excuse NOT to pay. If a business owes you ￡5000 and can't pay ￡5000, do NOT take that as the end of the conversation. "WHAT CAN YOU PAY" - whist you list all the payment options you can accept.

It's not the first time that a business has been paid by credit card to clear overdue invoices.

Credit Control is about having a GOOD SYSTEM in place that reduces RISK.

What are the warning signs?

1) The good ole' "Jungle Telegraph". Never one to be believed as factual, however it can give you an indication that all is not well, and at least encourages you to be on your guard.

2) A serious one to watch. When a NEW business that you have been chasing for a while all of a sudden wants to use you. That could be GREAT, it could be a sign they are on stop elsewhere. Look before you leap.

3) Make sure you monitor trends - a company that paid in 30-45 days now taking 60+ days can often be a sign that cash flow issues are there.

4) Never assume ANYTHING. Good credit control is keeping your business safe, you also want to make sure you don't damage business relationships. Don't assume anything, a business could be late paying because a ￡1m payment has been delayed a few days. NOT paying is often a sign of cash flow issues, not always, proceed with caution.

5) Be wary of the "Goose that Laid the Golden Egg" - this is the relatively new business that has paid on time or paid up front for SMALL orders now looking to place large orders and extend credit. Not everything that glitters is golden.

More and more business are now using Invoice Discounting or Invoice Factoring. That's a whole other debate. It can assist massively with your cash flow as the majority of your invoice is paid when the invoice is raised. Have a look at this Business Comparison site.

In many cases good credit control can be provided for you, saving you both time and money.