- Credit check your customers and set their credit limit
Before taking on any new customers always be sure to credit check them. A late paying customer could damage your cashflow and your business, especially if they are a big customer. By credit checking them beforehand, you will have access to their credit limit, credit score, key financials over the past 5 years and you can also see when they pay their bills. A Creditsafe credit report even show you how they compare to other companies in their industry and if they are getting better or worse at paying their bills, alongside adverse CCJ information, mortgages and any debt which that company owes. Set yourself criteria, and stick to it. For example, if you only want to deal with creditworthy customers, you can refuse to do business with any customer that has a credit score below 30. Be vigilant in your criteria and make sure that if you do choose to deal with companies that are not deemed creditworthy you forecast late payments into your cashflow so you’re not left in debt.
- Invoice on time, accurately and follow up with reminders
Your invoicing process is an important part of your cashflow structure, if it’s not correct it could interfere with your business getting paid. Spend some time planning out a process to make sure it will run smoothly, efficiently and regularly, such as delegating who is sending out what and when. If you have a process to follow you will be more vigilant in checking where you should be at a certain time of the process and adjust your approach accordingly if progress hasn’t been made. It’s also a good idea to come up with a creative design for your invoices so they aren’t ignored when they land in the inbox of your customers. By getting your invoices out on time you will also create a pattern for your contracted customers and they will get into a routine of paying you at the same time every month. Accuracy is key, and nothing will slow a payment down more than mistakes on the invoice so double check them before they are sent out. Once your invoices are sent out, either call or email to follow them up a few days before you are expecting payment. Even if a customer does plan on paying you, sometimes bills can be the pushed to the back of their mind, so a gentle and polite reminder a few days before could benefit you. Encourage direct debits or standing orders, this will hopefully reduce the amount of late payments.
- Be firm with overdue payments
If a customer misses a payment, you have to be firm with them. Have a process set up with how you deal with late payments and make sure you follow them for every customer. For example, if you contact the customer and they say they need more time, have a set time you can extend them and regulate it for all customers. Contact the customer and try to get to the bottom of why they aren’t paying you. If they can’t afford it, try to work out a payment plan of smaller payments over a period of time; it would be in your best interest to try to fix the problem yourself before getting legal aid as this can be costly.
- Have a system for chasing debts
If a customer continues to miss payments you can cut their service however then you could lose a customer, so always think carefully about the route you want to take. If for instance you have contacted the customer and haven’t had a response, there are different routes you can go down when trying to collect debt. The first is debt collection letters. Creditsafe offer a service called Debt Chaser that will send debt chasing letters on your behalf. You can choose what template you want to use and how often they will be sent out. If that fails, there’s going down the route of a debt collection agency or legal aid. A debt collection agency usually works on a no win, no fee basis, therefore if they don’t recover your debt you won’t have to pay them. We always advise this before legal aid basically because it will save you money and we can even refer you to one of our trusted debt collection agencies if our letter sending service doesn’t work out for you. However if you have used a debt collector and got nowhere, a solicitor could issue a CCJ against the company and fight to get your money back, but beware- it can get pricey!
- Monitor your customers and forecast your cashflow
Monitoring your customers is one of the best things you can do to stay ahead of the game, if you are monitoring them you are able to spot the warning signs if they start to fail. For example, if you are monitoring your customers’ credit report and their credit score drops, you are able to see why. Our Risk Tracker monitors your whole customer base for you, and if anything on their credit report changes you are notified by email. Remember, if a company becomes insolvent and proceedings are already underway, there isn’t much you can do to get the money owed to you, so always stay ahead of the game and monitor them closely.
- Make sure your contracts are solid
When setting up a new customer, always ensure the paperwork is correct. Set terms and conditions that you are comfortable with will protect your business as best it can. For example, make sure your customers know that unless they pay you for your services, you have the right to stop them. Going over the smaller details at the beginning could help you tremendously if a dispute between yourself and a customer turns nasty.
- Consider offering a discount for early payment
As late payments are becoming a growing trend in business, we always advise companies to do everything in their power to avoid them. Offering incentives and discounts for early payers is a great way to encourage your customers to pay you early. If you can’t afford a discount on the current payment, offer them one on their next payment and forecast this into your cashflow.
So there are our top 7 tips for credit control, do you have any more for us?