The Importance of Good Credit Control
Cash is reality, as the saying goes.
Every business owner should already understand that having a positive cash flow is one of the fundamental aspects of operating a business.
But how do you improve your cash flow?
Some businesses may opt to increase prices to get more cash or they may enter new markets which can be an exciting move to make.
However one of the most important, and sometimes overlooked, ways to better your cash flow is by having effective credit control systems in place.
Why is credit control so important?
Effective credit control is vital to sustaining growth for a business, as well as being equally important to businesses fighting for survival.
The ultimate goal of credit control for your business is making sure you have cash coming in, when you are supposed to, keeping your cash flow nice and healthy.
Late payments from aged debtors are one of the biggest reasons that businesses encounter cash flow problems. Having effective credit control helps mitigate some of the risk here, meaning you get paid on time, more frequently, and avoid non-payments. This will help keep your cash flow in good shape and enable you to focus on growing your business.
Having a healthy cash flow means you will be less reliant on short-term fixes such as credit cards and loans with high interest rates. The money you would spend on fees and interest is much better placed going into your business to help you grow.
In the event that you face a late-payer and need to chase the debt yourself things can get frustrating. Chasing debts yourself can be time-consuming for a start, picking up the phone and writing letters. This is particularly hard when you are in dire need of that invoice being paid as soon as possible. Whether the money arrives as soon as you start chasing or not it has taken time away from you or your employees that could be much better spent elsewhere. And this is the best case scenario.
On the other hand, if your debt collection processes are not up to scratch or if you leave a debt too long then the debt could be written off completely which leaves you out of pocket. If you have outstanding debts that you are worried about, get in touch for a friendly chat and our team of commercial debt recovery consultants will be able to advise you on the best course of action.
You will want to resolve any commercial debt issues before they reach the courts. Using court and solicitors to resolve commercial debts should be avoided as they are both expensive and very time consuming. Darcey Quigley specialise in pre-litigation debt recovery meaning we help recover debts and avoid expensive legal costs or credit insurance penalties. Take a look at the differences between Darcey Quigley’s approach compared to solicitors.
5 Steps to more effective credit control
Getting a handle on credit control doesn’t have to be complicated. All it takes is some time and resources. Here are some actionable steps that you can take to implement a more effective credit control system.
1. Regularly check your sales ledger
Effective credit controllers know their sales ledger inside out. When we say regularly check your sales ledger we do not just mean a quick overview now and again. You should be checking this weekly so that you have a clear view of upcoming payments and get a better understanding of the payment behaviour of firms on your ledger so that potential issues can be addressed as soon as possible.
2. Check customers are creditworthy
The first thing you should do with a new customer is credit check them. By doing this you will get a glimpse at their typical payment behaviour, understand if they have a habit of paying invoices late and if giving them credit is a risk to your business.
It is equally important to credit check existing customers, particularly when there is a change in their payment behaviour, perhaps paying a little later than usual. A business’s creditworthiness can be in a state of flux so keeping on top of any changes with regular customers is vital to your credit control management.
3. Set rules and expectations on your terms
Your aim here should be fulfilling the order with the minimum amount of debtor days as possible. Typically you should have more power in negotiations if you’re providing the goods however there are exceptions to this. For example if a large multinational organisation places a significantly large order then they may negotiate payment to be made in 90 days as opposed to 30 days.
do not want to do is leave yourself vulnerable by accepting terms that mean you are paid in 60 days if you need the cash in 30 days.
4. Establish formalised processes for chasing and collecting payments
An effective credit control process has at least one person (typically a team) responsible for understanding when invoices were sent and when payment is expected for each invoice in accordance with the terms agreed.
A system will also be set up that dictates when phone calls, letters and emails are sent chasing payments. Most companies will send a reminder on the day payment is due, but additional communications should also be planned for when they are needed if a customer fails to pay on time.
5. Nurture and maintain good working relationships with your customers
Having a strong relationship and good rapport with customers will help stay front of mind when a business does its cheque run, sometimes this is only done once per month. A good relationship will also make chasing any overdue invoices much easier.
Outsourcing your credit control
If you do not have the resources, time or budget to hire and train an in-house credit control team then outsourcing your credit control to Darcey Quigley could be an option.
We strive to help you take back control of your credit management by acting as an extension of your current credit control processes.
With decades of industry experience we help manage debts and ledgers of all sizes across all industries.