We took a look at some advice given by debt collection firm Cash Protection Agency that they gave out back in 2016 and it’s still extremely relevant today. A leopard, as they say, never changes its spots. We recap.
Here are five groups of people to watch out for, as well as their benefits and disadvantages when it comes to managing and meeting credit control targets.
If you normally offer 30-day payment terms, it can seem like a dream come true when a customer asks to pay you up-front instead, but it’s worth keeping a careful eye on their account.
With regular payments coming in, and irregular goods and services going out in exchange, it’s easy for the client to run up a substantial amount of credit – meaning you end up owing them.
Before you know it, you have to supply them with a large order at short notice, or face issuing a refund, which will not look good when set against your overall credit control targets.
‘Cash on delivery’ is a perfectly good policy if you can manage to successfully apply it. You will often find customers are quite happy to pay immediately for goods and services you deliver, as it keeps their own debts low.
One of the only risks could be that it leaves you with less money owed to you on outstanding invoices, which could decrease your access to invoice finance if you ever need it.
3. Prompt Payers
These people like to pay ahead of the deadline on their invoice but might not do so immediately. This raises a challenge of its own for your credit control targets, as you can never be certain of exactly when the money will come in, and these more irregular payers can be easier to simply not notice if they fail to pay at all.
Keep on top of this group and issue gentle reminders to encourage them to pay earlier in the allotted time, and verify that they have done so before their 30-day payment terms are up, so they can be positively crossed off of the list of debtors to chase.
Paying on time is arguably the ‘best’ approach to outgoing credit control – it meets your obligations on debts, without payments going overdue, but it also keeps your own bank balance as healthy as possible for as long as you can legitimately do so.
When you are on the receiving end, it can feel like you are being paid ‘just in time’, and this can seem like cause for concern if a client regularly ‘only just’ pays before the deadline, but remember that to them, this is just good business sense.
You might want to consider offering a small discount for earlier payment to these customers – if they are so precise about their own credit control targets, even a small price reduction should persuade them to pay sooner, which is good news if you prefer to have invoices settled ASAP.
Finally we reach the group – unfortunately one of the largest groups – of people who simply do not pay on time. Your credit control policies should include prompt and stern action against these debtors.
Failure to recover funds promptly can make it increasingly difficult to prove that you are still owed money later, and increases the risk of the debtor doing a vanishing act, so make sure that these individuals are at the top of the tree when it comes to tackling your pile of outstanding incoming invoices.