Now is the Time to Review Your Credit Control – Keep Watching the RoadPosted: Feb 6, 2025

With what looks like a very difficult time ahead, reviewing your credit control now could be the difference between financial success and failure.

It is very easy to take your eye off credit control. Sadly, we see it happen regularly and it is a major contributor to a business slipping into insolvency.

Credit Control is Not an Option

I am happy to state clearly and often that effective credit control is essential. Without it, you are unlikely to be able to maintain a healthy cash flow and frankly, that is the thing protecting your business from financial disaster. The money must come in and it must come in when you expect it. If it stops, if it even stalls, or just becomes irregular and unreliable, then the problems caused will infect almost every aspect of your business

Even if you think you currently don’t have a problem with credit control, circumstances can change quickly. In a difficult economy, customers who were once reliable may begin to struggle financially. That will quickly affect payments to you and soon you see their problems impacting your bottom line. It happens, and it happens regularly. We see so many companies that have thrown a lot of focus on securing new customers while assuming that existing clients will continue paying on time. It isn’t uncommon for a business with a lot of potential orders to just lose the race between cashflow and new revenue and become insolvent.

A good analogy would be driving down a very familiar road. You know it, you think it’s reliable, but you still don’t take your eye off the road in case something unexpected happens. It’s the same with credit control. You shouldn’t take your eye off it because an unexpected hazard could be around the next bend.

These are a few of the areas we suggest you think about to maintain good credit control and healthy finances.

Regular Credit Checks

Many businesses conduct very thorough credit checks before taking on new customers. In fact, it’s quite rare that a new customer who slipped through the net and then proved to be a credit risk is a factor in insolvencies. However, things change, and a lot of those same businesses then do not regularly monitor the financial health of their existing customers. There is absolutely no guarantee that a company that was financially stable last year will not be struggling today.

Best Practice Tips:

1. Conduct periodic credit checks on existing customers using a reliable method that reviews their financial situation with agencies such as Experian.
2. Some credit checking providers will allow you to monitor companies so you will be alerted to any changes. Perhaps you could consider this for your top ten clients?
3. Watch for changes in trading behaviour, such as repeated requests for extended payment terms or increased order volumes that push your T&Cs.
4. By regularly reviewing creditworthiness, you can take proactive measures to help you and the customer. You shouldn’t be afraid of adjusting credit limits or requesting upfront payments if need be. The key is often to just talk to the customer about the situation and you may be able to avoid problems before they develop.

Continue to Do the Basics

Again, we can all fall into bad habits, so remember the following;

Best Practice Tips:

1. Invoice your client as soon as the contractual agreement allows. We often see people invoicing at the end of the month even though the product or service may have been supplied at the beginning of the Month. Then there are 30-day payment terms for clients. At this point, you are effectively giving an extra month of credit. No customer will pay without an invoice, and it is the trigger for the payment process, so send it as soon as you can
2. Send statements on a regular basis, but more importantly, use these to review if you have any customers falling out of line with the agreed terms.
3. Have you set a credit limit? It is surprising how often this is not set or routinely waved for ‘a good customer’ who is actually in financial difficulty and could suddenly stop paying
4. If the customer exceeds the credit limit you should put them on stop until a payment is made.
5. Chase for payment when it becomes overdue. Putting in a phone call often provides a better outcome than a string of letters which are easy to ignore. It also provides an opportunity for a conversion to understand the customer’s position

We often find that customers respect a supplier who is on top of credit control and will make payments to you over other suppliers because they know you are on the ball. 

Do You Have a Plan for Customers in Financial Difficulty?

A major concern for any business is what to do if a key customer runs into financial trouble. Irregular payments, or worse the total financial collapse of a major client, could have serious consequences if they owe you a significant amount. Not only could you find yourself dealing with reduced revenue, but you may also have goods or materials stagnating in stock that would ordinarily rotate much more quickly.

Best Practice Tips:

1. Identify your high-risk customers—red flags will be large outstanding balances or a history of late payments.
2. Have clear credit control procedures in place and regularly check they are being followed. These need to include defined escalation policies for overdue payments.
3. Is it worth looking at credit insurance to protect against bad debts from major clients?
4. If a key customer is struggling, open a dialogue early. Discuss alternative payment arrangements, such as staged payments, before the situation gets worse. If you think insolvency appears likely, seek professional advice early so you know where you stand when it comes to recovering debts.

Are Your Credit Terms and Policies Up to Date?

Credit terms should evolve with your business needs, your customer profiles and, of course, the economic conditions. If you haven't reviewed them recently it could be time to check if they are still appropriate.

1. Ensure that your credit terms reflect current risks. You may need to tighten payment deadlines or perhaps introduce changes to contracted terms to reflect your own situation. A common mistake here is to allow the payment times with your customers to drift significantly away from those of your suppliers and leave you with an increasing cash shortfall.
2. Make sure your terms are clear and legally enforceable. If necessary, consult an expert to ensure compliance with UK law.
3. Regularly communicate payment expectations to customers. Also, a clear contract prevents misunderstandings and provides legal backing in case you have a dispute. Remember to update the customer in clear terms if you change your T&Cs

Not updating credit policies as needed can be a significant negative factor when it comes to safeguarding your cash flow.

Go Back to Basics and Get Proactive

If you haven't reviewed your credit control processes regularly, or at least in the last year, now is the time. The current financial instability in the wider economy means that even long-standing customers, regardless of how well you know them, can quickly become risky.

We suggest you take things back to the basic guidelines and checks. Customer creditworthiness, regularity of payments, strong T&Cs, and all the other basics of good financial practice, will always be the best option. Taking a proactive approach and reviewing your policies ensures that you’re not just reacting to payment issues but preventing them before they arise. In the end, a strong credit control strategy is key to maintaining financial stability and ensuring long-term success.

Don’t fall into the trap of thinking that just because the road is familiar there won’t be a developing hazard somewhere waiting to cause a problem.

If you are facing financial difficulties in your business and think you may be heading for insolvency, call us or go online and arrange a free initial consultation. The sooner you act, the more time we will have to help you find the right path.

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