Whether physical ‘hard cash’ or merely digital numbers moving between bank accounts, cash is king and therefore good credit control is the first step to maintaining good cash flow in your business. Since 1967 we’ve helped hundreds of businesses to establish themselves and grow and so we know the best ways to manage credit control and quality cashflow in SMEs. Here we provide our top 10 tips for how to improve credit control.
- Make sure your terms are clear from the start
- Invoice on time
- Invoice accurately
- Follow up your invoices
- Send invoice reminders
- Send a regular statement
- Maintain good communications with debtors
- Enforce your due dates
- Make clear any trade restrictions resulting from non-payment of invoices
- Say thank you!
1. Make sure your terms are clear from the start
Good credit control starts well before you raise your first invoice. When you set up a new account with a client, make sure your payment terms are absolutely clear along with any penalties that may apply for late or non payment of invoices. Be sure to get their agreement in writing, either by signing a sales order or a copy of your terms. It may feel like a rather heavy-handed way to start a relationship but our experience says that having these conversations early makes for a far smoother trading relationship.
2. Invoice on time
When it comes to sending invoices to your client, don’t delay. The maintenance of credit terms is a two-way process. If your terms are 15 days and you’ve agreed to invoice at the end of each month, make sure your invoice gets to the client at the end of the month. It is unfair to expect them to stick to 15 days if it takes you 6 days to deliver your invoice as that effectively restricts their time to pay by almost a week.
3. Invoice accurately
Whilst getting your invoice to your client on time is important, almost of greater importance is that it is correct. If the invoice needs approving then you want it to move through the process as quickly as possible. Having to reissue an invoice can delay payment by a week or more, especially if your client runs specific payment dates during the month. So, before you hit send or print, checks dates, quantities, descriptions, discounts, VAT calculations to reduce/remove the chances of having your invoice parked, queried or worse, returned!
4. Follow up invoices
Don’t assume that sending your invoice is job done or that the email or post has arrived. Within an appropriate amount of time e.g., next day for email or a day or two later if posting, call your client and ensure the invoice has been received. At this point, ask if they have had chance to check it/log it on their systems and if so, do they have any issues or concerns that may result in non-payment. You can also ask for an expected payment date at this point, to add to your records, or merely seek clarification that they know when it is due, in line with your agreed terms.
5. Send invoice reminders
If your invoicing software has automated reminders built in (most online solutions do as standard) then enable this and tailor the message. If you cannot automate this then make time to ensure you drop in a gentle reminder to key contacts or the accounts payable team at your clients. By maintaining this regular contact throughout the invoicing/payment process you increase the opportunities for concerns to be raised and resolved.
6. Send a regular statement
A monthly statement is a good way to improve credit control and keep on top of debtors, beyond chasing single invoices. If your business issues multiple invoices to each client then a regular statement can be incredibly helpful for their accounts payable team. It ensures both sides can keep an eye on the bigger picture.
7. Maintain good communications with debtors
The concept of phones calls, automated reminders and statements is all about maintaining contact through the process. As noted above, it is designed to tease out any issues sooner than later, rather than waiting until an invoice goes unpaid to dispute or query anything. But if you want to improve credit control you need to involve the sales team just as much as accounts teams. So be sure to maintain good channels of communication in your business to ensure you do not create or compound a credit issue by providing more product or services to a client with a significant unpaid/overdue debt. Throughout the process make sure all communications are noted and referenced against the account or individual invoice.
8. Enforce your due dates
By now you should be aware of any issues that may result in your invoice(s) not being paid. But even if you have carried out all of the previous steps above, there is no reason why you cannot put a call in to you client a day or so before an invoice falls due to be completely sure it will be paid in line with your terms. On the due date watch for payment and if it does not hit on time, don’t be afraid to pick up the phone and chase it.
9. Make clear any trade restrictions resulting from non-payment of invoices
Linked to the first step above, clients need to be aware of the implications of non-payment of invoices. Does these mean a hold on their account or reduction in service? If so, don’t be afraid to enforce it and make sure your sales team is aware so you stand shoulder to shoulder. It is important to differentiate between good business and just business and credit control lays at the heart of this difference.
10. Say thank you!
Whilst settling invoices on time is part of your agreement, there is no reason not to acknowledge when a client adheres to those terms and settles an invoice or their account on time. Hopefully you’ll have said thank you for their business at the start, so why not maintain that positive relationship throughout?