Improving Your Credit Control Processes

It's critical to keep your cash flow forecasts updated, to avoid any nasty surprises and be able to respond quickly to issues which threaten positive cash flow in the business.

Late payments can create the risk of a vicious cycle of cash flow problems, bad debt, and the imposition of restrictions on your business from creditors which exacerbate the problem.

Having a clear and effective process for credit control will help protect you.

> GET A FRESH PAIR OF EYES

As a business owner, you should regularly be reviewing your credit control processes with a view to making constant improvements. Better still, get someone else who's experienced with managing credit controls to provide some impartial input.

A fresh perspective, such as how to incorporate a new piece of software or platform to enhance credit rating checks for new customers or invoicing automation systems and best practice can all be really helpful.

> CUSTOMER ONBOARDING

Some companies operate on a 'benefit of the doubt' basis when it comes to taking on new corporate clients and extending lines of credit.

Credit checking new customers is sometimes viewed as admin-heavy and an extra cost. And of course, it's not fail-safe.

But running simple reports before issuing credit will at least mitigate the risk of not identifying customers who might need additional due diligence or suitably amended payment terms.

But whatever the level of credit-worthiness amongst your customers, make sure that payment terms are clear from the start and the course of action taken when payments are late. Don't let it be a surprise for them - or for you.

> COMMUNICATION

When communication around payment terms is clear, it makes other communication much easier, if things go wrong.

Customers going quiet or providing valid excuses for overdue invoices might be entirely reasonable or justified. But always trust your gut and don't let things slide, especially if it's not the first time. Take control of the situation and establish a timeframe for each step that is required. Don't allow anyone else to dictate the pace of resolution.

This where having a clear procedure for late payments AND a well structured communication process are essential. Sending letters and following up with phone calls at the required intervals must all be recorded and ultimately passed on to a commercial debt collection agency.

But even at this stage, the communication must remain intact, not least the phone calls. This will allow matters to be resolved more informally if required and prevent the situation from turning sour, the moment a debt collection agency becomes involved.

> REMAIN VIGILANT

Your business must be consistent with invoicing quickly and accurately. Not only will this help optimise cash flow, but will alert you to problems before they can have a more serious impact on your business.

You might detect a familiar delaying tactic with late payers, for example they 'missed' the invoice you posted or emailed. Constantly seeking ways to de-risk the process, such as checking they received the invoice, will pay dividends.

> FINE-TUNE YOUR PAYMENT TERMS

A quick statement of the obvious. There's little point in setting payment terms if your internal systems cannot process payments and reminders within the timeframe which you've set. In other words, you need to stay on top of the system you've created.

But overall, your terms must reflect the credit terms you've set with your own suppliers. And ideally, your customers should have a reason to pay you on time, or ahead of time, through a combination of incentives, discounts, penalties and practical arrangements, such as part payments.

> PAYMENT SYSTEMS

While you want to make it easy for your customer to pay you... you also want to make it easy for yourself and to avoid payment methods which prolong the amount of time it takes for the payment to actually reach your bank account.

> FIND THE RIGHT PARTNERS

Many business owners don't have the time to implement and monitor effective credit control processes. And they might not have someone in the team to do it for them. Finding the best way to put the right systems in place should be a top priority for any business owner...