Credit Control is a system businesses use to make sure that it gives credit to only customers who can pay. It also involves making sure that those customers pay on time. Credit Control is a vital part of any successful business as it helps reduce bad debts and increase a company’s cash flow.
As a Credit Control outsourcing company, we understand the importance of cash flow in your business, as having cash to make payments when due will help you improve your own credit ratings with your suppliers. This is why we are interested in helping businesses improve their credit management system with our professional credit control process.
Why the need for Credit Control?
A lot of small businesses fail as a result of bad debt and lack of adequate cash flow in the system. Credit Control is an essential element in running a successful business and it is vital that the process be taken seriously. Non payments or late payments can create cash flow problems for businesses, especially growing businesses. As your business grows and your customer base increases, it inevitably becomes complex and time consuming to manage payments and invoices. If you have only a handful of customers on your account, following up on late or non-payment can be handled easily. But when you have a larger number of customers, it can be easy to lose track of who has paid and who hasn’t. When this happens, you will find out that you cannot cover your bills and meet your business expenditure. This is a first step in a series of steps that can lead to business failure but this can be avoided by putting in place effective credit control measures.
How you can improve your credit control procedure
It is important to have an effective credit control procedure in place in order to have a successful business. Without enough money coming into your business on time, your business cash flow will be severely affected and a lot of things can go wrong. One thing a lot of businesses fail to understand is that the process of credit control begins as soon as an order is placed. This is a process that starts with knowing your customers before selling to them and ends only when you have been paid in full.
The following four steps can help you improve your credit control procedure:
- Know your customers: it is very important to make certain that your new customers would be able to pay you when the time arrives. One way to find this out is to carry out a credit check to know if they have a history of failing payments. Any customer you are offering credit facilities to should be able to provide referees who you can reach out to, to know their financial situation and how they are likely to behave when it comes to payments.
- Put it in writing: From the beginning of the transaction, you should make it clear to all parties what your expectations are. Put the transaction down on record and include details such as credit limits, payment dates and penalties for delayed payments. This will help prepare your company for any default. Once this record is done, it should be signed by your company representative and your customer. This way, everyone is aware of what it entails and in the event of any dispute, you will have a legal document that will serve as protection should the situation get out of hand.
- Build a Relationship: A good relationship is critical to business success. Customers tend to pay up quicker rather than damage a beneficial relationship. If you keep in constant touch with your customers as a general rule, it gives a personal touch to your business and shows them that you care. If for any reason, you need to sort out a problem with them in the future, you have already established a rapport and they would be more receptive to talk and cooperate than if it is the first time you are communicating.
- Have a follow up system: Some people need constant reminder of when their payment is expected. Have a follow up routine will help you constantly remind your customers when they payment is due and keep them up to date of their outstanding. This also helps you keep track of the cash you have outside. Some business owners feel that constantly reminding customers of their outstanding can spoil business relationship. Outsourcing your credit control system can help you avoid this.
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How to deal with overdue invoices
One of the major challenges businesses face in their credit control process is securing payment from customers with overdue or disputed invoices. No matter how much you want to avoid a conflict, it is never a good idea to ignore an overdue or disputed invoice. The situation won’t go away and it is better to handle it as quickly as possible before escalates. The longer an invoice remains overdue, the more difficult it becomes for you to collect and the more your business becomes at the risk of being saddled with a bad debt. In situations like this, it is important to politely but firmly call the overdue invoice, get it paid up and balance your accounts.
The customer should have a copy of the transaction contract and so should not be surprised if you put in motion that process necessary to get the payment completed. It is vital you act in the best interest of your company regardless of the reasons they give for delaying the payments.
Of course, you wouldn’t want to spoil your business relationship to a point where it cannot be repaired which is why having your credit control process outsourced to an independent company could be the right solution.
Outsourcing your credit control process is a more cost effective method than employing and training the staffs needed to do it. It also frees up valuable time for you to focus on other aspects of your business.
With bad debt and cash flow problems known as two of the main reasons most small businesses fail it's important that you have professionals keeping an eye on yours.
We offer outsourcing services and for many years, have been helping businesses with their credit control processes and procedures.
Get in touch with us today to find out how we can professionally manage your company’s credit control system.