Effective credit control is not just about avoiding bad debts and collecting your cash. It is also about understanding the difference between a customer who wants to pay but cannot and one that just does not want to, and taking the appropriate action at the right time. In short, it is about promoting profitable sales.
Any credit control expert will also be able to advise you on the appropriate risk appetite for your business and help you sell more when you need to. You need to be of the mindset that not all bad debts are bad! Would you rather sell 10 items on credit at £100 and get paid for 5 or sell 3 of them on cash terms (obviously it depends on the items / services you are selling).
Like everything else, it takes time to perfect the process and it is forever evolving, the simple tips included here should at least get you on your way.
Who are you doing business with?
Prior to any business engagement ensure you know who you are entering into business with. You will need to collect some basic information: Full company name, address & registration number if limited. Make the process more formal by using a credit application document, make sure the document requires a signature from the appropriate person at your prospect and include your basic terms, such as payment terms.
Assess your risk
Ensure you understand the risk of offering a prospect credit by assessing the risk. A simple credit report does not break the bank, but might just save you a lot of hassle at a later date. Balance this information with other data at your disposal such as information from other suppliers and a simple Google search of the company name followed with the words “testimonial”, “review” or “complaint”. If you have any doubts, don’t be scared to asked for further financial information or insist upon cash in advance.
Payment terms – ensure they are visible.
You want to be paid on time don’t you? Then ensure that your customers know when and how they should pay you. Ensure the due date and your bank details are written clearly on your invoices. Too often I have seen invoices state “payment due in 30 days” or “Terms 7 days” written on them, don’t do this! Write the exact date…. If you accept purchase orders from your customers, before you send any goods or start any service, double check the payment terms stated on it. If it does not match yours, deal with it immediately to avoid any arguments at a later date.
Get your invoices out and get them right first time.
Your goods have been sent or your service completed. You need to get your invoice out the door NOW. Do not wait until the end of the month or until the next solar eclipse, the earlier you invoice, the earlier you get paid. Whoa, wait… have you double checked it? Are you 100% sure it is correct? Don’t give your customer any tiny excuse to delay things or ask for a new invoice, take the extra 5 minutes and ensure it is correct.
Customer Service r0x
You have sent the invoice, sitting in your comfy chair and waiting for your payment to arrive, what to do next? Give your customer a courtesy call before the invoice falls due for payment. Make sure they have received it, everything is correct and that is has been approved for payment by the appropriate person. Use the chance to re-affirm the good karma of the transaction, you might even get some good testimonials or leads for future business.
ASSERTIVE not rude.
Don’t confuse assertiveness with aggression. Customers will be juggling payments between suppliers, if you don’t call, you don’t get paid. If you show yourself to be a soft touch, you will have to wait until they are ready to pay you. As soon as the invoice reaches the due date insist upon payment. Don’t accept excuses at face value, ask the appropriate direct questions (for example: “Why have you not been able to pay to the agreed terms, the terms that you signed on xx”). Most people are honest and want to pay. You need to take the time to listen to HOW they respond to you as closely as to WHAT they are saying to you.
A quick tip on phone usage: most people will not hear the first few words you say on the phone, so never open with an important question. Open with either a simple statement or an even simpler question (example: even after the person picks up the phone and tells you who you are talking to, ask if you are talking to xx – it gets there full attention).
What next?
If you extend credit you need to understand your exit routes. There are a few processes you should be aware of, even if you never use them; “The Late Payment of Commercial Debt (Interest) Act 1998, as amended in 2002”. The County Court Process for Judgments. Enforcement methods such as “Warrant of Execution”, “Third Party Debt Order”, “Attachment of Earnings” or the “Charging Order”. You should also be aware of the process of mediation, as many judges now prefer you to have tried this route before taking legal action
Process, Process & Process.
As your company grows, you need to ensure you have a clear credit policy in place. The policy will detail how you credit assess new customers, who in your company has the approval to grant credit and at what levels. It should also show your terms of sale (payment terms) and who has the ability to override them and a general outline of your collections process. The credit policy is a live document and is open to change as your business evolves.
to me to you, to me to you
Your terms are in place for a reason, as you employee more people make sure they all know about your credit policy. Your terms are standardised for a reason, unfortunately, Bob the new sales person may not know that your payment terms are 14 days and may agree 30 days for a new customer. Taking the time to walk everyone through this important policy may save you problems at a later date.
Aaaaaaaaaagggggggghhhhhhhhhhhhhhhh..
Understanding a credit report is simples right? Asking for cash that is yours is easy innit?
Not everyone is comfortable asking the right questions or being assertive and there a lot of people out there will exploit that given the chance. If you cannot do it for yourself and cannot afford to pay for a new staff member then don’t panic. Outsource the work to a partner company who will get the job done.
In conclusion, you need sales to survive in business, you also need to turn those sales into cash in the bank. The old adage “a sale is not a sale until payment is received” should always be remembered. Don’t neglect your policy and have a customer service based collections model. UK businesses pay each other on average 20 days beyond the agreed due date, understand what is acceptable to you and your business.
