Setting up an effective credit control system is vital when it comes to optimising cashflow and avoiding bad debts.
Whether you are a new start up business or a business in development, then we recommended establishing your credit control system now, before you get too busy to do so.
Here are some of our thoughts to help you establish a system that gets the cash in your bank account as soon as possible, reduces the risk of bad debts and manages the often hidden cost of people chasing the money owed to you.
Checking creditworthiness
- Ask new customers to complete a credit or trading application form
- Obtain an online credit rating
- Take up credit references from other trade suppliers
- Make sure you have checked for County Court Judgements (CCJ’s)
- Apply for a bank reference
Giving credit
- Consider initial orders on cash upfront or on delivery
- Set a minimum order size for credit accounts
- Set a maximum credit limit for each customer and Don’t exceed it
- Review and manage your credit limits
Your credit terms
- Agree payment terms with your customer at the order stage and be clear
- Set out the maximum credit period
- Consider offering a discount for early payment
- Ensure your terms include claiming interest for late payments
- Provide your terms at all opportunities (order, invoice, chasing)
- Take contract advice to ensure all clauses relating to your product and service are included
Fulfilling the order
- Of course, get the order details right
- Obtain proof of delivery for goods and an audit trail for services
- Ensure the customer is satisfied before invoicing
The invoice
- Establish early on how your customers pay their invoices
- Clarify if any authorisation process is required
- Have an easy to understand invoice
- Send your invoices quickly and as soon as you can after delivery of your goods or service
- Check receipt of your invoice
Everyday credit control
- Send statements as early as you can each month
- Set time aside for regular chasing of your outstanding invoices
- Start chasing before the account becomes due (checking all in order to pay)
- Don’t worry about chasing
- When chasing ensure you have all the invoice details in front of you
- If the customer stops buying, then ensure you are aware and know why
Chasing debts
- Telephone any late payers to seek the reason for the delay
- Cultivate a contact in the accounts payable office to a point that can ask for by name
- If struggle to contact, try different times and different methods but don’t avoid phoning
- If you hear an excuse, always ask when you can expect to be paid
- Watch out for delay tactics
- If necessary, put the customer ‘on stop’
- Look to maintain a positive relationship throughout the process
Further action
- If not making progress in collecting your money, issue 7 day warning letters and consider using a debt collection agency
- If legal action seems likely to get paid, then sent a letter of claim
- Don’t be afraid of taking legal action – a good customer is only one that pays you!
If you would like us to share our experience and knowledge to discuss your credit control system, then please call us on 01865 379272.
