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5 credit control mistakes that your business could be making

cash flow

Ensuring your cash flow is up date and monitored can ensure your business stays in the red even in the challenging economic times we are experiencing.

Fortunately, with an effective credit control procedure in place, the threat of late payment can be reduced. Even though most owners know this companies continue to make the same credit control mistakes:

  1. Lack of strategy
  • It is often said by failing to prepare you really are preparing to fail.
  • Setting out a day-by-day strategy, ensuring employees are appropriately trained in all stages will ensure there are no surprises.
  • Have different strategies for different ‘customer types’ for example high risk customers should have a short collection strategy, meaning the debt is escalated quickly if payment is not received on time. You may want a different strategy for small value invoices that are mainly automated email reminders with a few phone call to make your credit control department efficient.
  • Ask yourself “what’s the worst that could happen?”, and make sure you know the answer and have plans in place for that situation. Start with the end in mind as Mr Covey said. When you start trading with a new client or have ongoing negotiations with an existing client, always ask yourself….”if I had to go to court to get payment, can I prove this money is owed” therefore we recommend summarising verbal agreements in an email and ask them to confirm your understanding of the conversation is correct. Make sure you can demonstrate acceptance of your terms and conditions, either in writing, verbally or by conduct.
  1. Being too trusting
  • Whilst customers may look and say there is no problem with payment, the reality could be entirely different.
  • Ensure that you only do business with customers who will pay you, you should get to know them and their payment habits before offering credit terms.
  • This can be achieved by initial credit reporting and monitoring. Learn to understand what the basis of a credit report means and set a credit limit accordingly. Ensure your T&C’s give you the right to suspend your service or provision of goods if your customer is over their credit limit or late in paying. If you don’t have specific terms to this effect, you may find you are in breach of contract if you do suspend service.
  1. Not making the most of your written correspondence
  • A clear and easy to understand invoice with all relevant information included to make it easy for your customer to pay you can improve the time taken to pay your invoice considerably. Be aware of your customer’s invoice process to ensure you comply with it fully to reduce further delays in payment.
  • Communicating Your terms and conditions at the outset of the relationship are also a major component of protecting your business. You can set payment expectations early so there is no misunderstanding. Also, in the event something does go wrong, your T&Cs can be used as evidence in court if needed.
  1. Customer care
  • When it comes to credit control, you need to be firm but fair and remain professional at all times.
  • Tenacity and consistency is the key to good credit control. If you only contact your customers when the bank balance is looking low, they will take advantage of it.
  • The important thing is to set the right tone and then remain consistent in your efforts to achieve the best results.
  1. Hiding from your problems
  • When it comes to dealing with late payment and the associated cash flow problems you can run, but you can’t hide forever.
  • Without money coming in your cash flow will suffer and your business may not be able to meet all of its commitments.
  • Statistically the longer you leave it the less likely you are to get paid, meaning it’s vital that you act quickly in order to protect your business.
  • As soon as an invoice goes overdue you need to start the process to get back what you’re owed. Even contacting your customer before the invoice is due can be a good idea. Send out regular statements so they are aware of invoices not yet due as well as overdue. A ‘customer service’ call prior to the invoice being due to ensure they are happy with your service/goods and there are no issues also helps you get paid more quickly.


So how do you avoid these 5 common credit control mistakes?

Here’s a quick recap:

Develop a solid credit management strategy

Get to know your customers and their payment habits

Invoice quickly and accurately

Set the right tone and remain consistent in your efforts

Chase your customer as soon as an invoice exceeds terms

If you feel you need any further advice or information please get in touch.

There are a number of ways we will be able to help from Free how to guides, to outsourcing we will have a solution for you.