With late payment and bad debts commonplace, the key to making sure you get paid on time is having an effective credit control system. It’s a vital component in ensuring your business maintains a healthy cashflow by minimising the chances of suffering from bad debt.
By implementing robust credit control practices, you’ll be better placed to offer appropriate credit terms to customers and have an effective collections procedure so that payments are received on time and the risk of overdue invoices is reduced. So, let’s talk about the things you can do…
Here are some top tips to make credit control a key focus in your business:
- Have a clear, co-ordinated credit control procedure and a robust system for fulfilling orders, invoicing and chasing up overdue payments.
- Create a credit policy that covers accepting new customers, the changing status of existing customers, exceptions to payment terms, changing credit limits, suspending accounts and using third-party enforcement.
- Clearly define who is responsible for credit control, or if it’s more cost-effective, outsource your credit control.
- Look at using technology, such as quality credit control software to automate manual processes to enable a pre-emptive approach to payment delays.
- All new customers should be credit checked as a matter of course to minimise risk. It is also prudent to set low credit limits when first beginning a relationship with a customer.
- Set out your payment terms in writing and make sure that all customers are aware of them and your terms and conditions. This will help to avoid misunderstandings and strengthens your ability to collect payments later on.
- As invoices become due send reminders. If payment is late, pick up the phone and have an informal conversation first to resolve any issues and to try and reach an agreement, which could involve different payment terms for a temporary period.
- If you have debtors who persistently pay you late, consider reducing or removing any credit limit that you otherwise agreed with them. You should include your entitlement to do this in your Terms and Conditions from the outset.
How you can invoice accurately:
One of the reasons for non-payment relates to invoice queries or poor administration. So, it’s essential to get your invoicing right. While the structure of invoices can be industry dependent, there are some general elements that should be followed:
- Clearly states 'invoice' and contains your contact details, logo and V.A.T. number
- Includes an invoice number, date prepared, payment due date – either 30-day, 45-day or 60-day timeframe – and your preferred payment option.
- Give a detailed description of the work or service you carried out or goods supplied, with dates, quantities and the price you charge for your goods or services.
- Detail any additional terms and conditions such as your returns policy, how many days the customer has to pay before incurring a late fee and any discounts for early payment.
Efficient administration and effective credit management are vital to help you to identify the signs of late payment and bad debt before any problems arise. The key is to take preventative steps from the outset and keep track of what you are owed and what you’ve been paid and then act as soon as possible to keep your cashflow healthy.