One of the biggest problems in business is getting paid – and that’s where credit control is essential.
Too many business owners are so busy working on new products and services, they lose track of what’s happening
in their bank accounts. Getting a grip on credit control helps ensure customers and clients are paying on time.
What is credit control?
In simple terms, it is another name for getting the money you’re owed. When supplying products and services your customer owes you a sum of money. The time between supplying clients and getting paid is known as extending credit to them.
There’s a delicate balancing act because while you want to be paid, being too aggressive could lead to customers refusing to use you in future.
What is a credit control policy?
Few start-up businesses have credit control procedures in place. Issuing invoices and hoping for the best isn’t the most efficient way to work, but it’s simple and most likely to be used.
Instead, it’s worth putting a credit control policy in place, especially if you are sending 20 or more invoices a month.
Techniques you can use
There are ways to minimise your exposure to the risk of non-paying clients. You can:
- Use credit check companies before accepting customers, such as Creditsafe.
- Reduce payment terms so customers pay faster. You don’t have to stick to 30-day agreements, getting paid in 7 or 14 days is better for your cash flow. It may be better to do this for new customers as current clients could be frustrated if you suddenly change your payment terms for them.
- Discounting for prompt payment is an option. While you won’t get every penny on the invoice, it can speed up payments and helps cash flow.
- Tighten up invoicing and collection procedures.
3 mistakes to avoid
Small businesses, especially start-ups, can make simple mistakes that slow the process of collecting payments. Here are a 3 mistakes to avoid.
- Not all clients are the same
Even if you have a long list of clients already who pay promptly, you may find your next one isn’t the same. Not invoicing them exactly as they like it could mean not being paid. Always ask:
Who you need to speak to regarding invoices.
What details are needed on the invoice (for example whether they need purchase order numbers).
When payment runs take place.
- Delays in invoicing
Sending your invoices might be a job you ‘get around to’. But it’s an important job that cannot be neglected. Send invoices as soon as you can. It’s best to do so immediately after you deliver your product or service. Your client will know that you’ve just delivered and are most likely to be in a positive frame of mind about your business. If you don’t invoice, a customer can’t pay!
- Unclear payment terms
How long do you want to wait for payment? Payment terms are often accepted as 30 days, but is that clear on your invoice? No matter how long your terms are (7, 14 or 30 days) make sure your new client or customer is aware of them.
Before you start doing business, outline your terms and get your customer to sign a condition of sale document. This reduces confusion on behalf of your new client and means they cannot use misunderstanding as a defence.
If you’d like to know more about credit control techniques and avoiding mistakes, contact us today.