Why credit control could hold the key as the future brightens
Prime Minister Boris Johnson has announced his plans for easing lockdown restrictions in England, the vaccine rollout is progressing, and registered company insolvencies were markedly down in January.
There is certainly a lot more for businesses to feel hopeful about.
But we are by no means out of the woods, with the longer-term repercussions of the pandemic still to be felt and likely to make trading conditions treacherous for a while longer.
In mitigating the impact and reducing the level of risk businesses are subjected to, one area that will be incredibly important to focus on is credit control.
Here, we explain why and highlight three action points for credit control teams to keep front of mind.
Extent of economic fallout yet to be seen
Overall numbers of company insolvencies have remained low since the start of the first UK lockdown in March 2020.
The number of registered company insolvencies in England and Wales was 50% lower in January 2021 than January 2020.
In fact, December 2020 was the only month since the start of the first UK lockdown in which overall registered company insolvencies were higher than in the same month of the previous year.
But these figures have been skewed by the number of government measures put in place to support businesses, and masks the number of businesses in financial difficulty.
According to Begbies Traynor’s latest Red Flag Alert, there were 630,000 companies in significant distress in the UK at the end of 2020.
Key measures have included temporary restrictions on the use of statutory demands and certain winding-up petitions, as well as enhanced government financial support.
However, it is expected that these support packages will soon start to be scaled back, with repayments on government-backed loan schemes and deferred VAT bills about to commence, plunging some of these distressed companies into further difficulty.
As we have seen in previous times of difficulty, any increase in business failures will have a knock-on impact throughout the supply chain.
When one business is forced to close, many others in the supply chain are significantly affected by losing that custom.
This is why the performance and efficiency of businesses’ credit control departments is going to come under increasing scrutiny in the months ahead.
So, what can you do?
1. Be cautious
As lockdown restrictions are eased, it’s more important than ever that businesses of all sizes know who they’re selling to.
As well as those who may be affected by the scaling back of support, companies who were once financially stable but affected by the loss of a key client may suddenly find themselves in difficulty through no fault of their own.
Therefore, be sure to conduct the necessary checks and obtain the essential information about customers before offering credit terms.
We recently shared 14 tactics you could use to monitor the creditworthiness of your customers and protect your cash flow from late payment.
2. Be consistent
Whilst your attention may now be directed towards preparing your business for exiting lockdown, don’t let that impact your credit control efforts.
Consistency is key to achieving the best results.
If you apply strong credit control processes for a short period and then slacken off, you’ll lose many of the benefits.
So, stick to your credit control procedure, review its performance regularly and keep in contact with your customers throughout the credit period.
This will ensure that your invoice stays front of mind and you will be alerted to any potential issues sooner.
3. Be quick
Statistically, the longer an invoice remains unpaid the harder it is to collect. So don’t put off chasing customers for payment.
Know exactly when all your invoices are due and have plans in place to collect those payments as soon as possible.
In some cases, you may find that you need to seek professional help to collect payments.
This could be due to communication between you and the client breaking down, repeated missed payments, or simply an overload of credit control activity that you need help with.
The earlier an agency gets involved the higher the chance of getting paid the full amount, so be prepared to turn to an agency as soon as you notice a need.
As an experienced and award-winning debt collection agency we have a proven track record in supporting businesses with their credit control efforts and recovering unpaid invoices.