Credit control

If you have already visited our survival guide on the importance of cashflow you will have noticed that one of the main areas of focus is credit control.

Credit control is the gatekeeper for cashflow.

The reason your credit control is the gatekeeper to cashflow is that it facilitates the lifeblood of any business. To be blunt about it, credit control is the reason you have the money in the bank to pay the bills and wages. When your credit control is operating at less than optimal efficiency you are literally cutting off the supply of the thing that is keeping your business going.

The first question to ask yourself about credit control then, is to think about how well it currently works. It should be as simple as this… ‘you supply the goods or services, and the invoices are paid on the expected timescale’. Take an honest look as see if this is what happens in your business. If you cannot say this very simple formula is happening, then you need to look deeper and find out why. Here are a few things to think about.

Keep clients to the agreed payment terms

Offering payment terms may be a fact of life for a business, but if those terms are not being followed, then you have a problem. Effective credit control ensures that payments from customers are received on time. That prevents cash flow disruptions that could jeopardise your business operations. It’s not just about chasing payments either. It’s about creating a system where timely payments are part of the norm. Slippage in payment times happens easily but is usually much harder to correct. Whatever else, if you want to ensure that your business has the money to meet its obligations, you will need to know when the money is coming in.

Minimise your bad debt risk

Late payment can be a red flag that you may have a customer who is experiencing financial issues. The better your credit control, the earlier this will become apparent, and the more you can do to help them, and your business, avoid further difficulties. Sometimes, particularly when the economy is hard, you will need to understand each other’s circumstances. If your credit control is effective, it will act as an early warning telling you to speak to the customer and find a solution. 

Be prepared to react regardless of who the customer is

As we mentioned in the cashflow survival guide, we see a lot of businesses that have entered insolvency with money owed from ‘trusted’ businesses. Treat all customers and clients the same when it comes to payment. If they don’t pay, they should know where they stand and what will happen next. It’s OK to be understanding and look for solutions but cash is king in the end and your credit control should be protecting you.

Credit control is good for relationships

I know it seems counterintuitive, but customers usually prefer to know exactly where they stand with you, even if it isn’t what they want to hear. What you may see as being hard with them is beneficial from their cashflow point of view. If Fred Blogs knows he needs to pay you on time to get the supplies he needs to keep his business ticking over, you become a priority. Your good credit control is helping him with his own business cashflow.

Set a process and stick to it

I have seen some great examples of credit control processes over the years. Could you perhaps introduce a system where a client who tends to slip on payment receives an email reminding them an invoice is due in 2 days? Maybe, remind customers as they approach their credit limit early. Whatever you do, follow through with actions. I often see businesses in insolvency who are great on paper, but don’t stick to their own credit control rules. Your customers, your reputation, and your bank account will all thank you for it if you do. So, stick to your processes and most importantly, follow through on them.

In conclusion - Credit control is a matter of survival

As dramatic as that statement sounds, it’s true. As we said at the beginning of this page, credit control is the gatekeeper for your continued cashflow. Without money coming in, well, I think we all know where that road leads. So, keep on top of your credit control, have effective systems in place, and stick to them. It may not fully protect you from financial problems, but it will certainly help stop them from developing, and it will also help you deal with them if they occur.

There is a download to go with this page where you can jot down ideas and actions to help improve your credit control process. If, however, you find that these survival guides are telling you that you may be facing insolvency, or you think we can help with our business services, take the first step and contact us. The sooner we see you, the sooner we can help.