Credit control is an important part of financial management for any business. It not only allows an organisation to build strong relationships with customers and accelerate sales but also helps to avoid potential problems that can arise from non-payment and bad debts. Improving the way that credit control is managed can be transformative.
The consequences of poor credit control
Credit control starts the moment that an order is placed. It’s a function that needs to be integrated throughout the rest of the business to ensure that it provides maximum input. Without effective credit control it’s easy for late payments to spiral into non-payments and bad debts. The consequences of this can range from a lack of cash flow in the business to the company being unable to pay its own debts. If credit control is currently poor then it’s crucial to take steps to improve the way that this is being managed.
Improving credit control management
Establish a clear credit control process
It’s all too easy to overlook the need to have a clearly defined credit control process in place. This should cover all the stages involved, from the moment the order is placed to the point at which polite phone calls chasing invoices become more formal action.
State your terms and conditions clearly up front
It’s important to ensure that your customers know how long they have to pay. Equally crucial is making clear the steps that you will take where payments are late, including applying interest and fees.
Carry out customer research
It really pays to take the time to establish the viability of your customer before extending credit to them. Make sure you have key data such as name, address, company details and registration, as well as who is responsible for making the payments. You may even want to look into whether it’s worth getting a credit expert to carry out a credit check on your behalf (with the customer’s consent).
Make sure your invoicing process is sound
Be efficient when it comes to invoicing and make sure customers get theirs as soon as possible. Ensure that the invoice is correct, clear and addressed to the right person. It can be useful to include your payment terms on the invoice too.
Give customers plenty of payment options
The easier you make it for customers to pay (e.g. cheque, bank transfer, standing order, PayPal), the less likely you are to run into issues of non-payment.
Keep a note of problem customers
Maintain a regularly updated list of businesses or customers who have proven problematic in the past so that you don’t end up overextending credit to them in the future.
Take action as soon as credit terms are exceeded
Credit control requires swift action to avoid a late payment situation escalating. Don’t be afraid to take action – it is usually possible to preserve a positive relationship with a client by politely but firmly setting out what is required in terms of action on their part.
Our Credit Control course is ideal for anyone looking to have a better understanding of credit control and how to manage it. Get in touch to find out more today.