Credit control: making or breaking a business

January 17, 2018

Denise Parkinson of Cash Protection Agency (CPA) gives away her insider knowledge on how to manage such a crucial part of any business; credit control

 

Many businesses rely heavily on their overdraft but using an overdraft long term for a small business is not the answer, if you fall behind in collecting what’s due you will run into difficulties.

Credit control is a process that reports on whether a customer is considered a ‘good credit risk’ and can minimise risk of bad debts by filtering out customers deemed to be a ‘bad credit risk’. Credit control is a system used by a business to ensure it is only allowing credit to customers who are actually able to pay on time in the long run. This practice helps to improve the cash flow of a business, which is a problem seen in many small businesses but also large ones too.

 

It is something you might already feel you know enough about but perhaps need a reminder in how to be effective in it if things aren’t going your way. We spoke to CPA’s Denise Parkinson, who has 18 years’ experience in the industry, to find out exactly how credit control can make or break a business.

 

What actually is good credit control?

Effective credit control is the key for the growth of a business. But it can be hugely time-consuming. Good credit control is based on building relationships with customers, if they know that you are going to make regular contact when the account becomes due, they will place you at the top of their priority list.

 

For the smaller companies, credit control is usually done on an ad hoc basis and that’s fine when you’re dealing with a handful of accounts. But once you start to grow it is advisable to have good procedures in place. Regular chasing is key. If this cannot be done by you, employ someone who’s confident and will not be a pushover.

 

Late and non-payment of bills can create major cash flow problems for companies. As a business increases its customer base, managing invoices will become more time-consuming and complex, so it’s vital to get things in order as bad credit control can eventually affect your company’s ability to receive loans or be approved for leases.

 

Would you say this is an area you’ve seen a lot of businesses struggle with?

If the MD or founder is the one who calls the customer and asks for payment, the chances are that debt-chasing is only done when payment is very late and/or when the MD has time.

 

New or smaller companies tend to overlook credit control. However, credit control is crucial to every company’s survival.

 

In my experience it isn’t just the smaller companies that struggle with credit control; many larger organisations also have difficulties.

 

How would you advise businesses to improve their credit control processes?

Whoever’s charged with credit control should know when invoices are sent and when payment is due on each of them. Equally important, policies should be put in place to determine when a call is made to chase payment. A reminder call on the day the payment is due is also advisable.

 

Having good terms and conditions in place is also a major factor when setting up new accounts that offer credit terms. Be sure to credit check every person or company that you offer credit to. Ask for a personal guarantee from directors if you are unsure or if the credit check is not satisfactory. It is inexpensive to carry out a credit check in comparison to what it could cost you if an account goes bad.

 

Clear accurate invoicing is a must. Inaccuracies could delay payment. Clients will not be in a hurry to inform you when an invoice is incorrect; that is until payment is due.

 

Chase at regular intervals, a reminder that payment will become due shortly is advisable. Give them a chance to query the invoice if necessary. Offer discounts for early payment and threaten interest for late payment.

 

Make it easy for your clients to pay you. Cheque payments are probably not the best option because you will be given the excuse that the cheque is in the post, which will inevitably delay the process. Direct debit, standing order payments or card payments are the most popular.

 

Why is credit control one of CPA's specialisms?

We have many years’ experience within the team. We’ve heard all the excuses and know all the delaying tactics. We contact them before the invoice is due to ensure that the invoice is on the system.

 

We don’t have any distractions. If you’re designated a case handler then they will deal with your account on a daily basis – it is their job to ensure you receive payment.

 

We are confident when asking for money and good at building relationships with your clients. We follow strict confidentially rules ensuring that your clients do not know that it is a third party calling and act professionally at all times.

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In short, Denise recommends applying the following to your credit control procedures:

  • Credit check customers

  • Set out your terms

  • Clear invoicing

  • Regular chasing

  • Easy payment options

Feeling out of (credit)control? Call CPA for further advice on 0116 268 8965.

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