Credit Control: Keeping a Business Alive

Running a business in recent times has been a lesson in resilience. Costs continue to increase and customers are cautious. Cash is proving tight for many businesses and credit control is a core discipline for keeping a business afloat in such times.

When businesses get into financial trouble, it is often because they have run out of cash and not because they are unprofitable on paper. Credit control sits right at the centre of solving that problem.

When sales are made on credit, cash can often arrive weeks or even months later than expected. VAT, PAYE and suppliers, on the other hand, still need paying on time. A single large customer who pays 30 days late can be enough to put a major strain on a small business.

Effective credit control can help to turn sales into cash in a more predictable way. So, what is involved in credit control?

Good credit control begins before the invoice is raised. Having clear payment terms that are agreed with the customer before work starts helps set expectations on both sides.

Try to avoid any delays in sending invoices out. For instance, if invoices are due when work reaches a certain stage, ensure that you are keeping track of the work done and send the invoice as soon as the trigger point is passed. The earlier you can send an invoice, the earlier you stand to receive payment.

Having agreed your payment terms, you then need to enforce them. If customers are routinely allowed to drift beyond your stated terms, you are telling them that your deadlines are flexible.

For instance, if you include a 14-day term on your invoice but only start chasing at 45 days, you may find that most customers do not pay until around the six-week mark. On the other hand, if you follow up politely the day after the 14 days have passed, the difference in cash flow can be dramatic.

It can feel awkward to chase payment, and you may be concerned it will damage your relationship with your customer. However, most well-run businesses expect to be chased if they miss a due date. Clear communication and timely reminders show that you run an organised business.

Keeping your tone consistent and professional helps normalise the process and makes it clear that payment is simply part of how you do business, not a personal criticism of the customer.

Good credit control can help you spot problems early. When a reliable customer starts to delay payment, that’s usually because something has changed. Sometimes it is simply an administrative adjustment, but it can also be the first sign that they are experiencing some financial difficulty.

If you catch that early, you may have some options. For instance, you may be able to tighten credit terms, request payment upfront, or pause work before you are out of pocket.

You may be surprised at how helpful it can be to regularly review your aged-debtor report.

On that subject, the most effective credit control systems are regular and documented. Make credit control a regular part of the week, rather than something only considered once non-payment has become a problem.

A weekly review of outstanding invoices and use of standard reminder emails takes the emotion out of things. Your accounting software may be able to automate some parts of the process for you.

Businesses that take credit control seriously are less likely to face sudden cash crises.

It is not about mistrusting customers but rather helping ensure that the value you create for your customers is turned into cash in a timely and reliable way. Credit control can be the difference between growth and constant firefighting. If you would like help reviewing your current credit control processes and understand what your debtor figures are telling you, or putting something more robust in place, please get in touch on 01384 376 964. We would be happy to help you!

Folkes Worton LLP Chartered Accountants
Accounting for the Future