Credit Control for Small Businesses

The Truth About Credit Control for Your Business

In any line of business it is vital that you have a set process and control over cash flow and a mechanism to avoid bad debts. An effective credit control system provides a business with a way of doing just that, checking the creditworthiness of a customer, and putting in place a clear agreement of payment terms before any credit is offered. A good credit control process will also help a company to fulfil all orders, to invoice accurately and effectively, and to chase overdue payments in a thorough and profligate way.

Be Fully Prepared for Your Customers Situation

We all expect to be paid, on time, for the work that has been completed for a client. In an ideal scenario credit would only be given to a customer that can afford to pay back in full, and within the agreed timeframe. Sometimes though, unforeseen circumstances will mean that this isn’t as straightforward as it should have been when the credit was given. With a clever, and thorough credit control system however, your company can ensure that all potential problems are predicted in advance for each specific client, with contingency plans ensuring that there is minimal disruption to your company cash flow, and relationship with the client.

There is always a chance that a customer will miss a payment, but you can still manage the situation to ensure that you are fully on top of the overdue payment and have an idea of when you can expect to receive payment. By setting up a sales ledger you can keep up to date with all customers and invoices, with dates set for expected payment. If it looks likely that a customer may be late with a payment, based on your sales ledger, you can begin plans to resolve the situation as quickly as possible.

Another way you can be prepared is to offer a small discount to your customers. This can be worded in a way that encourages early payment, and in the process takes away the chance of circumstances beyond your (and your clients) control impacting cash flow. If you are worried about a customers ability to pay back credit in full, a slightly lower profit is more desirable than no profit at all should the customer be unable to fulfil payment.

Credit Control Takes Patience, Dedication, and Detail

It is important to be thorough and patient with your credit control systems. Every single customer must be logged into the system, with every single transaction looked at to ensure that credit agreements are being kept to. It isn’t an easy process to undertake, and your team will have to be methodical with the detail of credit control, with many different clients and transactions to take care of at any given time.

It is for this reason that it is vital you create a strong credit control process from the very beginning. Put together a set of rules that you intend to strictly stick to, with a clear pathway for every single client to follow, and for every single transaction to work through. No matter what situation you are faced with your team will have clear instructions of how to deal with it, based on the extensive instruction created for the company as a whole.

Be Firm yet Flexible

The creation of credit control processes does not mean that you have to be seen as a bad guy to clients as you chase payment. There will be times when some clients request some extra time to make payment. A good credit control system will have strict rules to follow, but over time you can begin to see which clients are good payers, and those who constantly struggle to make payment on time. For some clients you can show flexibility in rare occurrences where payment is delayed, whereas it might be more beneficial for other clients to be hit with penalties and fees for continuous late payment. The carrot and the stick are approaches that must be intuitively chosen between based on your own understanding of a particular client, and a particular scenario.

The idea should be that credit control provides you with a strong framework from which to build strong relationships with clients that last for many years, and that do not have a negative impact on the cash flow of your company on a regular basis. Sometimes you will have to be the bad guy, other times you can show more lenience. A clear strategy is to let clients know that interest and late payment fees will be added to statements should a payment be late, so no client walks all over you.

Recognise Honesty and Deception

There will be times when clients are dishonest direct to your face about their ability to pay on time. Over time, a good credit control system and processes will ensure that you have the ability to build up an accurate picture of a client. This allows you to see which clients are most likely to cause you trouble in terms of payment, and which clients might just be going through a tough time as a one off and deserve some leniency on your part.

Having a good sense of whether a client is telling you the truth or not is a good skill to have when managing credit control. It also ensures that you can decide whether to be lenient or strong with a client over a late payment. If a client tells you they have already sent payment, ask for more details in order to double check your end if payment has been received. Always ask for more details, and over time the honesty (or lack of) of a client will be detectable.

Credit control is a vital aspect of running any business, whether you look to take on the process in-house or look for professional assistance to help control cash flow and chase overdue payments from clients. If you are interested in finding out more information about the CIBA Building and how we can provide you with the perfect foundation for success as a business, please feel free to contact our friendly team today. Our modern Birmingham-based serviced offices are the perfect location for any business to thrive. Call us on 07946 887087 or email