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5 credit control traits and practices to leave in 2021

30/11/2021

As we approach 2022 it’s a good time to look back at your credit control performance in 2021 to identify any areas for improvement. This will allow you to adapt your processes so that you can start the new year on the front foot.

Are you seeing a large number of customers missing payment deadlines, for instance? Is there a common reason that customers give for not paying invoices on time? Or is your overall DSO higher than your industry average?

Answering these questions can help you to pinpoint which stages of your order-to-collections cycle can be improved upon, and drill down into the specific tactics you are (or aren’t) employing.

No matter what your business does or the industry you’re in, however, there are certain credit control traits and practices that we think would be better left in 2021.

1. Using manual processes

Slow paper-based systems and a lack of automation are  two of the leading causes of late payments.

Therefore, by ditching your slow and manual processes you could improve payment times.

So, as we enter 2022, now might be the time to look at automated systems to improve your in-house processes and hopefully your credit control performance.

This blog post looks at 10 reasons why e-invoicing is good for your cash flow

2. Avoiding awkward money conversations

Despite the fact it’s rightly yours, asking businesses for money they owe you can be a daunting task. But you should never be afraid to take action.

According to GoCardless, 29% of SME leaders feel uncomfortable asking customers for payment and nearly three-quarters (73%) are willing to forgo up to 10% of their annual turnover to avoid an awkward money conversation.

That’s a lot of money to lose out on simply due to fear.

Discover 5 reasons why you need to let go of fear and act on late payment here.

3. Accepting poor payment practices

Supply-chain bullying has long been a problem for SMEs. The government has tried various initiatives to discourage this behaviour, including appointing a Small Business Commissioner, strengthening the Prompt Payment Code and introducing payment reporting regulations. But late payment continues to cause cash flow problems for small businesses.

Therefore, it is essential that you take the steps to protect your business from this behaviour.

Utilising credit management tactics such as charging late payment interest and putting repeat offenders on a stop list can show that you do not tolerate poor payment practices.

Understandably, many small businesses feel as though they cannot respond in this way to large businesses due to the value of the contract, and the prestige of being associated with such a big brand.

But, if you’re being forced to accept credit terms of 90 or 120 days – plus late payment delays – your cash flow could struggle as a result.

So, it’s time to put your business first. If they value your product or services, they will respect your payment terms.

This blog post looks at what to do when your most valuable customers don’t pay.

4. Continuing to supply late payers

Whilst ending customer relationships is a last resort, when those customers are coming between you and a healthy cash flow, they are arguably no longer worth the money they spend with you.

Approximately £23.4bn worth of late invoices are currently owed to firms across Britain, according to latest figures – a number that could be significantly reduced if businesses stopped supplying repeat offenders.

Yet many businesses continue to work with those who pay late with few repercussions for their poor behaviour.

Persistently late payers are never going to clean up their act if you keep letting them get away with it.

It can be beneficial to place the worst offenders on a ‘stop list’ and warn them that they will not be supplied with any further goods or services until all outstanding invoices have been settled.

This pause on supply is often enough to encourage them to clean up their act.

If after this you continue to supply the customer, you might decide to ask for an up-front payment or deposit when they place the order so that you don’t get stung by late payment again.

This blog post shows why not supplying bad customers makes perfect business sense.

5. Wasting time chasing old debts

As debts get older they become harder to collect, which can consume a great amount of your time and resource.

Debt Register found that 32% of all businesses spend half to three-quarters of their time chasing overdue invoices. Almost a quarter (24%) spend even more.

Every minute you spend chasing a dated invoice you’re taking away from newer invoices that have higher chances of collection.

Neglecting the remainder of the sales ledger in this way can lead to more severe problems further down the line.

So, if you don’t have the necessary resources in-house to commit to chasing these old debts alongside newer invoices, you might benefit from outsourcing these overdue invoices to a specialist debt collection agency.

This will remove the burden from your business and also bring their expertise to the process.

You can outsource one-off debts as and when you need assistance. Or it could be beneficial to opt for ongoing support with all invoices which reach a certain age so that you can concentrate on other invoices knowing that your aged debts are in safe hands.

This allows the debt collection agency to become an extension of your credit control team working with you to get the best results for your business.

This blog post offers tips on how to choose a debt collection agency

To discover how we could help your business with ongoing credit control or debt collection, please call our team on 0800 9774848 or request a call back today.

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