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Cashflow problems? How do I build a better credit control system?

8 June 2020
Mark Friend
Cloud Accounting, Accounting & Compliance, Raising Finance, Building a Business
How do I build a better credit control system


There is a saying that turnover is vanity, profit is sanity but cash is reality.

Many business owners believe that cash collection in their businesses isn’t a problem and are quite blasé about it.

Over recent months however cash collection has been brought firmly into focus, with many business owners scrambling to raise cash and who now realise more than ever that there is no question that cash is king.

In bad times there isn’t the luxury of being slack with extending credit to customers. For many businesses poor cash collection is the difference between life and death.

Here are 15 easy steps to building a better credit control system and improving cash flow management:

  1. Vet your customer. Be choosy. A simple credit check on a company could reveal that the company is brand new and has little in the way of track record, or a history of CCJs and bad payment history. Carry out a risk assessment and if you still decide to do business consider getting cash up front or personal guarantees and ensure that your terms and conditions are crystal clear.
  2. Monitor your customer. Your business circumstances will change and so will your customers. Make sure you subscribe to a credit software such as Creditsafe and monitor your key customers to check for any changes in their credit ratings.
  3. Bill on time. Too often we see a job virtually complete before the first invoice goes out or long delays in billing as the business owner is too busy.
  4. Bill correctly. Make sure you understand the terms for payment of your invoice. Larger customers may insist on purchase order numbers, approved worksheets etc… Making sure the invoice is right first time will ensure prompt payment.
  5. Bill more frequently. Don’t just bill when the job is completed but consider increasing the frequency of billing. Bill in stages or monthly, weekly or even daily if you have numerous small jobs being carried out each day.
  6. Send reminders out before the due date. Why wait for an invoice to become late before chasing? Credit terms are credit terms, so a polite reminder of when payment is due should not be detrimental to the relationship. Invoices should be paid by the due date. The due date is an indication of the final date for payment not the first!!!
  7. Ensure queries/issues are dealt with swiftly. Even when invoices go out correctly they are often queried by customers, so don’t sit on the query and give the customer the opportunity to delay payment. Make sure any issues are dealt with swiftly.
  8. Send out reminders automatically. Whether you use an automated system such as Chaser or a manual system make sure there is a system to chase debts quickly and promptly.
  9. Provide incentives for early payments and charges for late payments. If you could build this into your terms and conditions from the outset it could be a really useful way to encourage prompt payment.
  10. Make payment easier. Automate your collection system through pay buttons on your electronic invoices or if you have recurring invoices set up a direct debit system to collect monies.
  11. Phone up the debtor, or better still visit in person. Don’t leave it just to emails and post. You shouldn’t be embarrassed. If anything the customer should be, as they are taking advantage of your good nature and you are effectively funding their business.
  12. Have a credit control officer. Sometimes you and your team can be too close to the customer. Having someone else chasing the debt takes the emotion out of the process.
  13. Get to know the purchase ledger clerk. Many large firms will have a large accounts team. Getting to know the person who will be making the payment, a Christmas present, a thank you gift or note all help to build relationships and hopefully put your invoice or request for payment to the top of the list.
  14. Go legal quickly or walk off site. No one wants to do this and as a result most business owners delay it. However nothing works better than pulling off site or stopping work and simply saying sorry I have to go elsewhere to do a job because they pay and you don’t!!! Going legal may damage the relationship but to be honest the relationship is probably already damaged with the failure of the customer to pay on time.
  15. Document your credit control system. Having all the above written out in a diagrammatical format helps pinpoints weaknesses in your systems and provides clarity to your team.

Each element of the above can probably be broken down even further. If you don’t know where to start on credit control then give us a call and we will put you in touch with a company who can provide the help you need to remove this as an issue. If you need help with the technology such as pay buttons, direct debits, Chaser then give our Darren a call.

The content in this blog is correct as at 08/06/2020. See terms and conditions.

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