Credit control tips: After the sale

Arguably the most critical phase of the credit control process is the period between the sale and the date the invoice is due. Here are five important steps businesses should follow to enhance success.

1. Invoice quickly and accurately

It sounds obvious, but it’s imperative that invoices are sent to the customer as soon as an order is fulfilled. As some businesses won’t pay until they receive the invoice, any delays in invoicing will generally lead to delays in getting paid. The process can further be sped up by faxing or emailing (e-invoicing) the invoice rather than sending it through the post in order to cut costs and increase efficiency.

Equally important is that the invoice is addressed to the right person, and that the information it contains is 100% accurate. Any mistakes and your customer will be likely to delay payment further still. An invoice should therefore include a detailed description of the goods or services supplied and at what cost, a reference number, purchase order number if required, how and where to pay and the credit terms, which must be clearly stated. This blog shows how to design a high-impact invoice.

It is then advisable to make a courtesy call confirming receipt of the invoice, that there are no disputes and that the customer is aware of the date on which the invoice is due. Not only does this ensure that any issues are ironed out early on, it additionally helps to build a rapport with your contact and demonstrates your professional approach to credit control.

2. Clearly state your terms and conditions

Always ensure that your terms and conditions of payment are clear on all correspondence so that the customer is fully aware when payment is due and how you expect to be paid. This includes all contracts, order confirmations and the invoices themselves, whilst customers could also be informed about your credit terms during the sales process.

Invoices must be clear and easy to understand, prominently displaying your credit terms, the actual payment date, and the acceptable payment methods and details. The simpler it is and the easier you make it for customers to pay you, the more likely it is that you will be paid within terms.

You should also explain your credit control procedure in the event of late payment, from charging interest to taking legal action or referring the debt to a specialist commercial debt collection agency. Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses are legally entitled to charge interest on debts that exceed their credit terms.

By demonstrating from the outset that your business doesn’t condone late payment, the chances of getting paid within terms will be improved considerably. This blog post looks at 12 questions you should consider answering.

3. Maintain a positive relationship

Building a friendly and positive relationship with your customers carries several advantages. Not only will it encourage them to purchase more goods and services from your business, it will also improve the chances of getting paid on time – the more they like you, the less likely it is that they’ll keep you waiting.

It’s therefore important that time is taken to establish a rapport with those dealing with your invoices, and the early stages provide a perfect opportunity for this. First, when finding out who the invoice should be addressed to, get the contact details from that person – whether they’re one of the directors or one of the members of the accounts payable department. Second, once the invoice has been sent, make a courtesy call to confirm receipt of the paperwork and check that there are no issues that may affect the payment’s promptness.

In addition to providing another chance to speak to their team and identifying any disputes, it also demonstrates your business has a strong and professional credit control process in place that portrays experience and generates respect. If any disputes are identified, it is important to ensure they are resolved as quickly as possible by the right person and having the appropriate contact within the customer’s business is vital to speeding up this process.

Follow-up calls and emails to check the status of the debt at important intervals will also help to build an impression of a friendly and proficient business, also supplying your customer with plenty of opportunities to inform you if payment is likely to be delayed for any reason.

It is becoming more commonplace for businesses to incentivise their sales teams only once cash has been collected from the customer, focusing effort on building relations and reducing disputes from the outset as there is less of a tendency to oversell. The added benefit of this joined up approach is that the sales team buys into trading with businesses who are good payers rather than simply chasing turnover.

Finally, thank those customers who do pay on time!

4. Make it easy to get paid

There are a number of ways to make your credit control more efficient by addressing the methods in which customers can pay their invoices, particularly with the speed and successes of online banking.

Whilst cheques must be posted, take time to clear, are prone to human error and are frequently susceptible to excuses for late payment such as ‘the cheque is the post’, BACS payments (Banks Automated Clearing System) increase the speed in which the money enters your account and reduces the administrative burden on your customers.

Methods such as direct debits and the increased use of company credit cards also make the payment process easy. Meanwhile, standing orders can be set up for contracted customers that pay the same amount on a monthly basis.

The easier it is for your customers to pay, the fewer excuses they’ll have not to. Read our blog on the different types of payment methods which are available to businesses.

The important thing is that whichever payment methods you choose to accept, your invoices include all the information your customers require when making the payment. This includes your business sort code and account number, your company address and who any cheques should be made payable to.

When trading overseas, make sure that your IBAN and BIC are included on invoices to allow the foreign debtor to pay. Also make sure that, if you are billing in currency, you are able to accept currency payments into your account.

5. Encourage early payment

Sometimes it can be more beneficial to your business to be paid the majority of an invoice’s value early than receiving the full amount outside of terms. Early settlement discounts therefore provide an incentive for customers to pay up promptly, ensuring you get the money you’re owed within terms and reducing the cash flow gap between paying suppliers and getting paid.

Although this would lead to a slightly lower profit margin, depending on the impact it has on your credit control the discount could become part of your business’s pricing structure going forward. The discount percentage needn’t be excessive, nor apply to every customer, just enough to encourage those that are notoriously poor at paying on time. Typically, early settlement discounts are approximately 2.5% for customers who pay within stated credit terms. This blog looks at the pros and cons of early settlement discounts.

Again, this incentive must be clearly stated on every invoice and the figure your customer would be saving by paying early should also be stated prominently.

Another low-cost way to encourage prompt payment would be to enter all those businesses that pay inside a week, for example, into a competition, which would also improve your customer relations.

To see how Hilton-Baird can help your business throughout the credit control process, contact our team on 0800 9774848 or email collections@hiltonbaird.co.uk.