Credit control is the process of reducing the time between supplying a customer and getting paid. Your customer owes you, so you are in essence, extending them credit – but in a controlled way.
The topic of credit control can be debated from business to business, but there is no getting away from it being sensitive topic, and a delicate balancing act. You need to find the balance between ensuring you get paid as soon as possible, without leaving customers feeling like you are being aggressive.
Why do I need a credit control policy?
The vast majority of business do not have a credit control procedure in place when they first begin trading. Instead, invoices are just sent and hope to see the money coming in. If this sounds like you, use our top tips below to develop a set of procedures to help you get paid quicker!
TIP #1: DON’T ASSUME ALL CUSTOMERS ARE THE SAME!
If you have 99 customers who all process your invoices the same way, the 100th could be different. Whenever you land a new customer, always ask:
- Who do I talk to about invoices getting paid?
- What information has to go on the invoice for it to get paid?
- When do you do payment runs?
With this information at hand, you’ll never waste time sending an invoice that simply can’t be paid, or chasing the wrong person when it’s past due.
TIP #2: CONSIDER A CUSTOMER-BY-CUSTOMER APPROACH
It is important to assess each customer and make sure that you are happy they can pay their account on time.
Large companies often do credit checks on potential customers before they allow an account to be opened and whilst we are not suggesting you do this with every customer you may want to think about it for larger accounts.
You may also want to give particularly valuable customers more favourable terms than newcomers and so your policy can be adjusted on a case-by-case basis. That having been said you do need to be aware that having a very complex series of terms for different customers can be confusing for staff so make changes sparingly.
TIP #3: DON’T SHY AWAY!
Late payment is very common. It can be tempting to give in and accept it as part of life. But don’t. Review outstanding invoices regularly. Highlight the ones that are the furthest overdue, and the ones that are worth the most. Make a plan to get them sorted out.
When the due date’s up, it’s up. Tell your customer they’re late. Chaser has found that 80% of unpaid invoices can be collected through email chasing alone, so start there. But when that isn’t enough, pick up the phone.
TIP #4: USE SOFTWARE TO HELP!
Once you are at the level of invoicing where you are sending 30 or more per month, we would always suggest that you use your systems to take the strain. Almost all accounting systems will have at the very least basic credit control features and Xero are extremely helpful in this area.
Online credit control software allows you to view all of your communications in one place. It also gives insight into your customers’ payment habits, and helps you optimise your chasing strategies. The digital element of this system allows you to save hours each week and focus on the reason you started your business in the first place!
TIP #5: SHOW THAT YOU ARE GRATEFUL!
Don’t forget to say a thank you when a customer pays, whether they were on time or not. Positive messages strengthen the relationship and actually increase the speed of future payments. It takes no time to send a positive email. Work it into your credit control process.
Following the steps above a good starting place for a business with no credit control procedure in place, or could be a meaningful contribution to you if you already had a decent starting position. Using the tips above, you’ll be on your way to being a credit control expert in no time!
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