How to master your credit control in 7 days
Want to improve your credit control performance but not sure where to begin? Here’s how to master your credit control in just one week.
Day 1: Analyse your current performance
The first step to mastering your credit control is to look at what you’re already doing.
Analyse your current performance by asking yourself what is working and what requires attention.
By taking a thorough look at your performance you will be able to spot any recurring issues and take the steps to address them.
Perhaps your invoices are not being sent on time, you regularly experience payment disputes or maybe you’re offering credit to those who just won’t pay.
Whatever issues you spot should be highlighted ready to be actioned tomorrow.
Day 2: Update your processes
Using the information you learned yesterday now it’s time to implement new processes to improve your performance.
If your analysis revealed that your invoicing is an issue, you should review your invoicing process to ensure that you aren’t making any of these 10 common invoicing mistakes.
Improvements may include updating your invoice template to make it easier for customers to pay or switching to automated invoicing so that all invoices are sent on time.
If disputes were a regular occurrence for your business, consider ways to avoid these issues going forward and implement these into your credit control procedure.
You should also adopt a dispute resolution policy so that all of your employees know exactly how to resolve any payment disputes going forward to limit the impact to your business.
If you found that you regularly offered credit to those who can’t or won’t pay, it’s vital that you address your credit policy to ensure that you only offer credit to those who will pay going forward.
This can include performing credit checks, using account opening forms or utilising online searches to get to know your customers.
With all of your new processes in place, take the time to look at your wider credit control policy as a whole and ensure that it is updated as required.
Your policy should cover each step from the moment the order is placed until the invoice is paid.
Once you have agreed it with key stakeholders, be sure to train your staff and ensure that all stages are completed and stuck to going forward.
Day 3: Review your sales ledger
Your sales ledger provides valuable insight into your business performance and should regularly be reviewed.
If you haven’t done this recently take the time to do so now.
Look at any invoices which are overdue, speak to the customers responsible to understand why payment hasn’t been made and work with them to resolve any disputes.
You may wish to target the oldest debts first as statistically the longer an invoice goes unpaid the harder it is to collect the money.
But, if chasing these older invoices is to the detriment of newer items on your sales ledger, it could be more beneficial to seek external help.
A debt collection agency can not only bring vital expertise to the process to help you recover the monies owed (often for a success-only fee), it gives you the time to really get on top of the rest of your ledger.
Day 4: Evaluate your customers
Your sales ledger review may have revealed some customers who are persistently poor payers.
In order to protect your cash flow and improve your credit control performance going forward it’s vital that you look at ways to improve their behaviour or limit the risks to your business in the future.
You may have performed a credit check when your relationship started, but it’s important that this isn’t just a one-off task. So, get to know your customers again to evaluate your chances of receiving payment in full.
You could perform another credit check to spot any changes to their financial health or use online searches such as Companies House, The CCJ Register and payment reporting to see if they’ve been paying other companies on time.
Using this information you can then decide which action to take going forward.
If your research reveals a change in financial status you may want to adjust credit levels accordingly.
And, if you suspect a customer may not be able to pay, you could implement a stop list and withhold services until the payment has been received or take full or partial payment upfront for future orders.
For those who are showing no sign of improving their behaviour or are showing signs of severe financial difficulty it might be time to consider saying goodbye.
Whilst ending a customer relationship is arguably a last resort, you should ask yourself what a customer is worth if they continuously pay late or not at all.
Day 5: Protect against late payment
With late payment showing no signs of disappearing anytime soon it’s wise that you have plans in place in order to protect your cash flow should you be paid late or not at all.
This could be to build a cash reserve to cover any cash flow gaps or secure a funding facility that you can rely on to keep you going whilst you wait for payment.
But perhaps the most effective protection is utilising credit insurance.
Credit insurance protects a business’s cash flow from non-payment through insolvency or protracted default.
Take today to consider your options and decide which option would be most suited to your needs.
You could protect your entire sales ledger from late payment with whole cover or choose individual invoices or customers that you would like to be protected against with selective cover.
Whilst many obtain credit protection as a standalone product, it could be more beneficial to incorporate it into your funding facility.
Non-recourse invoice finance facilities protect your business and additionally release up to 90% of the invoice’s value within 24 hours of its issue to boost your cash flow.
Day 6: Partner with a debt collection agency you can trust
As discussed above, the longer you spend chasing overdue invoices, the less time you will have to keep on top of newer invoices which are approaching their due date.
Therefore, it can be hugely beneficial to partner with a debt collection agency for help with your oldest invoices.
Have a look at your success rates when recovering debts of a particular age. It might be that you’re great at collecting any invoices which go overdue by up to a week, for instance, but your success starts to diminish rapidly if they grow older.
That should help you to identify the most suitable time to bring in a debt collection agency. Whilst using their expertise to recover debts, it will additionally give you time to reprioritise your resource and make sure other invoices don’t follow the same path.
Partnering with a debt collection agency in advance of needing their assistance can speed the process of outsourcing up so that you are more likely to get what you’re owed.
Day 7: Never stop learning
Now that your credit control is in excellent shape it can be tempting to stop there.
But the best credit controllers know it’s an ongoing process to achieve optimum results.
If you apply strong credit control efforts for a short period and then relax, you will undo much of the hard work that’s been invested.
So, it’s important to be persistent and consistently revisit the steps above.
Part of this ongoing process requires you to keep on top of industry developments and best practices to ensure that you continue to perform to the best of your abilities.
This can be achieved by undertaking professional training and qualifications, watching online webinars or regularly reading credit control blogs, resources and news.