Credit control tips: Before the sale
Making sure your business receives the money it’s owed in full and on time begins as soon as an order is placed, something too many businesses are failing to realise. Here are some important steps your business should take before you accept any new orders.
1. Create a clear credit control procedure
One of the most important but frequently overlooked elements of the credit control process is the actual process itself. By clearly setting out a day-by-day strategy from the moment the order is placed until the invoice is paid, your accounts receivables team can adopt a co-ordinated and professional credit control procedure.
Once your partners, accountants and senior management have agreed the timetable, the next task is to introduce it to the accounts department and ensure that the necessary levels of training are provided so that all stages are adequately completed and meticulously stuck to.
Stages can range from invoicing the day the order is fulfilled and courtesy calls or letters that politely, but firmly, remind the customer of their obligation to pay you. Should the invoice not be paid after a certain time, it may be beneficial to pass the debt over to a specialist commercial debt collection agency.
For instance, businesses trading on credit terms of 30 days could adopt the following timetable once goods have been delivered or services provided:
- Day 1: Send invoice immediately
- Day 14: Courtesy call to check receipt of invoice and to confirm when payment is due
- Day 28: Courtesy call to check status of debt
- Day 31: Send an email to remind the customer that payment is overdue
- Day 37: Send a medium impact letter explaining that payment is now overdue and that you have the right to charge interest on the debt under the Late Payment of Commercial Debts (Interest) Act 1998
- Day 43: Send a high impact letter explaining that the debt will be passed to a debt collection agency in seven days if the debt is still unpaid
- Day 50: Hand the debt over to a commercial debt collection agency
2. Know your customer
With late payment and bad debts commonplace in the current climate, it’s becoming increasingly important to know your customer before committing to offering credit terms.
The first step is therefore to obtain all the necessary business information, including their full trading name, legal status, registration number, address and the key contact details of the management and contact responsible for accounts payable. An effective way of doing so is by sending an application form for completion, which could also detail your business’s terms and conditions of trade.
Using this information, it is then possible to ask a credit expert to check the credit risk posed to your business through the extensive range of credit rating services on the market. Credit reports are available for as little as £10 per report, whilst the cost can be offset against the impact a bad debt would have on your business’s finances and its cash flow. Online credit checks can be completed in a matter of minutes. This process is particularly important when taking orders from larger customers, where late payment can carry heavy consequences.
Should their credit score be low, you can therefore demand full or partial payment up front, decline their order, or at the very least take extra caution when performing credit control.
This blog looks at the advantages and disadvantages of performing credit checks as part of your credit control process.
3. Compile a stop list
For persistently late paying customers, or those with a poor credit rating, it can often help to place them on a ‘stop list’ or a ‘watch list’ to ensure diligence when selling to these companies in the future.
Businesses on the stop list should be informed and not supplied with any further goods or services until all outstanding invoices have been settled at the very least, while those on the watch list should no longer be offered credit terms without an up-front payment or deposit, or perhaps be asked for the full amount to be paid when placing the order.
These lists must be updated regularly and strictly adhered to when issuing credit terms to businesses, ultimately protecting your business’s cash flow from the worst offenders.
For more reasons why not supplying bad customers makes perfect business sense take a look at this blog.
To see how Hilton-Baird can help your business throughout the credit control process, contact our team on 0800 9774848 or email firstname.lastname@example.org.