A business will ideally only provide credit to those clients who have the ability to pay in a timely manner. Good credit control will increase revenues by ensuring that credit is only given to those who are considered to offer little risk, while clients who are believed to be a big risk will either be denied credit or offered restricted terms.
Without a solid procedure in place, you could be affected by bad debts and potentially face losing your business.
Who and how much
The first challenge faced by a business is deciding who should be offered credit and how to set the limits. A credit check is necessary for all clients so that you can make an informed decision over the amount and the payment terms. Don’t offer 30 days to pay automatically, as the client could be about to lose their business, leaving you without payment. To minimise the cost of carrying out credit checks, consider setting a credit ceiling, not checking anyone below a set amount. Although credit checks won’t guarantee that a client will pay, they will give you the information to decide how to provide credit terms. If someone is a potential bad risk, ask them to pay in advance for goods.
Clients who delay payment
In an ideal world you will always be paid on time by customers, so that you can pay your own suppliers in a timely manner and maintain a healthy cash flow. However, you will be faced with those who pay late and you will have to deal with the problem before it escalates. There are a variety of reasons why a client may delay payment; they may be trying to boost their own cash flow or have a problem with the order, or they may not be able to pay.
Contact the customer and ask for payment, reminding them that it is overdue. If the client pays part of the outstanding amount, issue a receipt with a request for payment of the remainder. If the client has financial problems, try to negotiate payment terms but stop further credit. Seek advice from a professional if you have problems collecting the debt.
Credit control is a time-consuming process
As a small business owner, you may find that you don’t have sufficient time to deal with credit control. Invest the necessary time every day or week to check that all outstanding invoices are paid. If any remain unpaid, start the collection process so that further delay is avoided.
For any advice or assistance with credit control, make sure you contact us as soon as possible.