Effective credit control is essential to protect your business. When customers are late with their payments, or don’t pay at all, it can cause real financial pressure, especially for small businesses. 
 
You might have had to pay staff costs and buy materials in advance. Non-payment means this burden falls on your cashflow
Worryingly, The Forum of Private Business says that small businesses are each owed £39,000 on average. A quarter of UK businesses fail because their invoices aren’t paid on time. 
 
What is credit? 
‘Credit’ can be payments that are due or any product or service you provide before you receive payment. 
 
A two-part credit control process 
By putting a good credit control process in place, you can reduce the financial risks for your small business. The first step is to make sure you only give credit to customers who are able to pay you on time. 
 
Unfortunately, even when you have made careful checks, things can go wrong. The second step is to have a clear process that you can use straightaway, helping to reduce your stress and speed up your payments. 
 
Part One: Credit control – Before you agree a sale you need to be confident that your customer will be able to pay you on time. 
 
Find out as much as possible about your customer using an application form to collect basic information. You can also run a credit check using a provider like Experian. Obtaining the right information at this stage can help to make any later debt collection easier if needed. 
 
It’s also a good idea to create your own reports on existing customers for future reference. If some of your customers have a history of late- or non-payment you can put a process in place to prevent it happening again. 
 
Use the information you collect to decide how much credit you are willing to give and for how long. Put it in a formal agreement with your customer before you start working with them. 
 
Once the work is complete, invoice your customer quickly to reduce the likelihood of them forgetting to pay you. The easier you can make their payment, the more likely they are to be prompt, so consider online and credit card payment options, for example. 
 
Part Two: Debt collection – Your credit control process should include scheduled reminders of when a payment is due. 
 
However, most businesses will experience late payments at some point. A good debt collection process will significantly improve your chances of receiving your money from late- or non-payers. 
 
You might start with a personal telephone call to make sure there haven’t been any misunderstandings. You can explain that you have a standard process that you will follow. Hopefully this will result in an immediate commitment to make the payment. 
 
Your process could include adding interest payments to the outstanding amount or stopping any ongoing work until payment in full has been received. In more serious cases you might need to take legal advice or use the services of a debt collection agency. 
 
Write down your process and use it consistently to reduce your stress and improve your cashflow. If appropriate you can add variations for the amount owed or how long it has been outstanding. 
 
Automation 
If this all sounds like a lot of processes to follow, then automation might be the solution for you. We have recently started using Fluidly automated credit control software and we have been very impressed. 
 
It can provide cashflow forecasting by taking the information out of Xero and can automatically run routine reminders, for example, to free up your time to follow-up on your more challenging payment issues. You can quickly see who are good- and late-payers and set collection processes according to each customer’s profile. An action list is automatically created so that you can see who you need to contact and why. You will also have a complete record each customer’s payment history. 
 
If you would like to know more about credit control for your business or how Fluidly could work for you, we’ll be happy to give you some advice
Tagged as: bookkeeping, cashflow, VAT, Xero
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