How can you make sure your customers pay their bills on time? Shane Morris of Aspen Waite has some advice on good credit control

Every year, start-up and small businesses in the UK fail because they run out of cash. One of the main reasons for this are cashflow problems caused by slow-paying customers and bad debt.  Unless you implement a clear credit control process, your business’ ability to grow will be under threat.

There are 6 key considerations for improving overall credit control procedures.

1.              Create a clear credit control process

It is crucial to implement a clear and coordinated procedure for credit control.  Initially, you need to establish a realistic timetable, including all the stages that need to be completed and adhered to by various team members within your business.  Credit terms need to be set and, after establishing these, you need to turn your attention to the stages involved in chasing payments.  For example, your process may consist of the following:

• Establish the importance of prompt payment of invoices by politely reminding customers of the payment schedule when the order is fulfilled.
• Send reminder letters on the day the invoice becomes overdue.
• Send subsequent letters every 7 days if the invoice remains overdue.
• After a specific period of time, it might be useful to pass the debt over to a reliable, commercial debt collection agency.

Simply recording this process ensures that all the relevant parties are aware of the terms and conditions and, in addition, will help to reduce the problems associated with late payment before they even occur.

2.             Research your customers

A further consideration in streamlining your credit control process is researching your customers before offering credit.  This credit management tactic is often overlooked.  This is partly due to the costs of producing credit reports.  However, some of these costs can be off-set by establishing which of your clients pose the greatest risk and focusing your attention on researching these.

Once you have obtained all of the necessary business information – such as full trading name, registration number, addresses and key contact details – you can easily check credit risk through a variety of online services.  Examining these reports can help you decide if that particular customer is safe to do business with.  While credit checking prospects will not guarantee payment, the valuable information it will give you will allow you to make a more informed decision about the terms and conditions of their order.

3.             Maintain a positive relationship

Your credit control process need not be about threatening your customers with debt collection.  Building a positive relationship and clear channels of communication with your clients is just as important.  One of the best ways of achieving this is by making courtesy calls to confirm receipt of paperwork or in advance of the invoice due date.  This kind of courtesy not only helps you to show that your business is friendly and professional, it also gives your customer plenty of opportunity to explain their situation.

4.             Invoice quickly and accurately

The most basic way to improve your credit control procedures is by invoicing quickly and accurately.  There are some really simple tips that help your business to increase the efficiency of this process:

• Send the invoice as soon as orders are fulfilled or services are provided.
• Email the invoice instead of or in addition to sending by post.
• Ensure that the invoice is addressed to the right person.
• Make sure that there are no mistakes in the invoice.

After an invoice has been sent, it is worth confirming that the invoice has been received.  This can help to solve potential problems at an early stage, as well as giving you the chance to build a rapport with your customer.

5.             Encourage early payment

At the most obvious level, early payment can be encouraged by making sure that it is as easy as possible for invoices to be paid.  Ensure, for example, that all your banking details are clearly stated on all invoices, as well as accepting different forms of payment – particularly online payments.

Incentivising payment is a further way of encouraging early payments.  In terms of incentives, you could offer early settlement discounts for those risky customers if they pay within the stated credit terms.  It can also sometimes be beneficial if certain customers pay the majority of their invoice on time, rather than paying all of it late.  If this sounds like it might have an effect on your profit margins, these incentives can be incorporated into your pricing structure.

6.             Compile a watch list and take action

Due to the problems that late payment of invoices can give rise to, you should never just ignore it.  If a specific customer often pays late, you can add them to a list of companies to watch.  This will ensure that you undertake the necessary due diligence when selling to them in the future.  For example, for those companies on your watch list, you could decide to only offer credit terms when they pay a deposit.

While customers may have legitimate reasons why invoices have not been paid, do not be afraid of taking action for persistent offenders.  If a particular customer is continuously ignoring your calls, a simple solicitor’s letter can often spur them into action.

For more information please call Aspen Waite in Wales on 02922 402135 or email [email protected]