Businesses all know that cash flow problems can result in costly overdraft charges and bad debt. In the worst-case scenario, cash flow problems can lead to business failure.
Yet, businesses are still making mistakes when it comes to implementing and following through credit control procedures. Do any of these ring true in your organisation?
Not having anyone within your company dedicated to credit control matters
• Having someone supervising credit control can reduce the risk of having to ‘write off bad debts’, which can cause business difficulties.
Not making payment terms crystal clear
• Ensure that you reinforce payment terms on your website, invoices and contracts.
• It is important customers are aware of the consequences of late payment.
Not sending invoices out in a timely manner
• It is logical really. If invoices don’t go out payments won’t come in and your cash flow will dry up.
Making basic errors on an invoice
• Be aware that unscrupulous companies will use invoice errors as an excuse not to pay up.
Not having a system in place to chase outstanding invoices
• The longer an invoice is outstanding, the harder it will be for your business to collect the debt.
Not carrying out checks on potential new customers
• Credit checks should be carried out before offering credit. Without credit checks your business is exposed to delayed or even non-payment.
Similarly, not setting credit limits for your customers
• From credit checks, you need to determine how much you are willing to risk.
Being too aggressive with your credit control
• If you demand payment before payment terms have been reached, customers may react by leaving payment to the last minute to teach you a lesson!
In contrast, being too passive with your credit control
• Some customers may genuinely forget to make a payment. A reminder will prompt the customer to pay.
• When it comes to payment terms, you also need to be strict. If a customer has overdue debts, do not give them credit whatever the sob story.
Not spotting the signs that a customer is struggling
• Failure to pay an outstanding invoice can be a signal of a struggling customer. Take advice as early as possible, before the problem spirals out of control. Consider putting a freeze/stop on any further work or further credit for companies who fail topay their invoices.
For all that we know that credit control is a time consuming and highly administrative process. Strong inter-personal skills are vital for this task, as unpaid debt issues can be sensitive.
Businesses do have options at their disposal. With an invoice finance facility such as factoring, the lender will provide full sales ledger management as well as offering bad debt protection.
Alternatively, a business can opt to outsource its credit control to a credit management/commercial debt collection agency.
If you would like to know more about your credit control options, please do get in touch.