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Credit Control for Small Business – 9 Pearls of Wisdom

Managing business finance can be a difficult task at the best of times, even more so when offering credit.

For a business to develop and grow, careful finance management is vital, not taking care of finance can lead to:

  • Lack of working capital
  • Poor control of overheads
  • Poor stock control
  • Inadequate pricing
  • Loss of contracts
  • Bad debts
  • Inability to raise growth finance
  • Poor credit rating
  • Bankruptcy
  • Business closure
  • Stress

Now the bad news over and done with. The good news is that with careful management many of the pitfalls outlined above can be avoided.

  1. Expect the obvious

First things first, doing business in the real world means that at some point you will encounter clients that do not pay on time. It would be fairly unrealistic to think otherwise.

With some customers, it may be due to the processes involved with invoice reconciliation and payments. Larger organisations tend to have different systems in place, that may mean several departments need to be contacted and signatures obtained before an invoice is paid. Or, those outgoing payments are made on a particular day of the month.

However persistent late payment for reasons other than the above will undoubtedly need to be addressed.

  1. Assess credit applications

Think about when you started out in business. Unless already working in an industry with established contacts and trade accounts set up, how many times were you given credit? The likelihood is not very often, if at all! That’s the first clue. Why should your business be any different?

Create a credit application process that stipulates the terms of your credit agreement. One that can be easily adapted in accordance with the level of credit and duration that you are prepared to offer each applicant. For a small fee, you can obtain legal guidance with regards to how to go about creating a suitable credit agreement.

  1. Obtain credit checks and references

Once an application is received, carry out credit checks to ascertain how creditworthy the applicant is. If obtaining references, credit checks can be carried out on referees too and both company accounts can be checked via Companies House for a small fee.

Whilst there is an initial outlay for this process, the long term savings can prove to be beneficial in terms of minimizing the risk of bad debts.  It also enables a more informed analysis of how customers manage their finances.

Ensure that references provide details of the company name, address, length of time the customer has been known to them, level of outstanding debt and the level of credit being offered to the client by the referee.

  1. Set limits

Never offer more credit than you are comfortable with, prepared to risk, or allow yourself to be pressured into raising the level of credit offered.  Especially to customers that cannot, or do not pay on time.

  1. Get acquainted

Where permissible, take time out to meet with customers face to face. Developing customer relationships can help to encourage faster payments. It also gives you the opportunity to understand how their business works from an operational point of view.

Many businesses employ Account Managers expressly to ensure that customer accounts are managed effectively.

  1. Get into good habits

Send out invoices and statements on time. Have systems in place that allow you to check if goods have been received and that customers are happy.

Nowadays, there is a lot of free and fee-based management and accounting software available that automate invoices and allow sales to be recorded in real-time.

Set aside a regular day and time each week to manage customer accounts. Focus on larger debts first, then the most recent. Ensure that at least once a month total accounts receivable, are checked.

  1. Incentivize to capitalise

Offer customers to either pay in advance or earlier than the invoice date. Many companies offer discounts for early payment, the only problem with this, is if goods are shipped before payment is received, some customers may still end up paying late.

Offering discounts for payment in advance or rewarding early payments can help speed up the process and also prove beneficial in fostering better client relationships.

  1. Offer different payment options

Where possible allow customers to pay in different ways, for example, BACS, Credit / Debit Cards and ACH Auto – Debit. Either online through your website, via telephone or bank transfer.

There several accounts and business management software packages that can send automated payment reminders and include pay now options. It may be worthwhile to carry out some research and see if there is one that matches your requirements if there isn’t one already in place.

  1. Never Play the Waiting Game

Whilst is reasonable to expect that some payments may take longer than others to receive, depending on the nature of the business or organisation, persistent late payment can lead to bad debt and in turn poor cash flow.

Set a time and date each week for chasing unpaid invoices, get into the routine of letting late payers know that you are on the case. Use a debt collection agency to chase bad debts and never write off debt unless it is for a very low amount.

Newable Business Finance

If you have need of short-term flexible finance, this is where we may be able to help. Newable Cashflow Business Loans are available to eligible limited companies that have been trading for 12 months or more:

  • Flexible facilities of up to £25,000.
  • Competitive interest rates.
  • Cash can be requested anytime in full or in parts.
  • Quick decisions.
  • No arrangement fees.
  • Can be repaid over 90 or 180 days.
  • Repayments made daily via fixed direct debits.

Find out more about Newable Cashlow Loans here.