Credit control: 10 ways to get paid faster by clients

Effective credit control is the key to good cashflow, writes John Cradden.

Running a business will always have its ups and downs, but even if the potential of your business is clear through things like a strong sales pipeline, recruitment of new staff and happy customers, none of it will matter if you end up spending more money than you have coming in.

It’s crucial not just to effectively manage your finances and keep on top of income and outgoings, but to do as much as possible to ensure you get the money that’s rightfully yours into your account as quickly as possible.

“Recovering business debt can be very frustrating and time-consuming, so all the more reason to have good procedures in place”

Effective credit control is the key to good cashflow. Every company needs to do all it can to ensure that customers and suppliers are paying on time. Recovering business debt can be very frustrating and time-consuming, so all the more reason to have good procedures in place.

When starting to create a good credit management policy, among the many sage pieces of advice from the Dublin City Local Enterprise Office is to consider the level of profitability inherent in each sale.

“Companies that have a low gross profit margin, such as livestock exporters, cannot afford significant bad debts, and thus they need to have a vigorous risk assessment regime in place.  Companies with high gross profit margins, such as software companies, can afford a more relaxed approach to risk assessment.”

1. Credit check all new customers

This should be done as a matter of course to minimise risk. It is also prudent to set low credit limits when first beginning a relationship with a customer.

2. Don’t forget existing customers

Are you remembering to check existing customers, too? Not continuing to monitor them could be risky, as circumstances can change quickly and your original credit check may no longer be accurate. Use credit reference agencies to identify which customers to keep an eye on.

3 Set out clearly your terms and conditions

Make sure that your terms and conditions – including payment terms – are clear across all your correspondence (contracts, order confirmations and invoices) as well as informing the customer during the sales process. This will help to avoid misunderstandings and strengthens your ability to collect payments later on.

4. Are your invoices clear?

Credit reference agency Experian suggests reviewing and, if necessary, reworking your invoice template so that it’s as easy as possible to read. Is important information, such as credit terms, accepted payment methods and expected payment dates, prominently displayed? Avoid making the invoice look cluttered, which could potentially confuse matters.

5. Make it as easy as possible to pay

Business advisors EFM Ireland suggests reviewing how you ask customers to pay and make it as easy as possible for them to do so. Direct debits, company credit cards, standing orders, and BACS (Bankers Automated Clearing Services) payments are all quick and require less admin. You could also consider the new breed of online payment methods such as Stripe, Paypal and Go Cardless, but there are charges and more admin involved.

6. Encourage early payment

EFM Ireland also suggests that some businesses may find it of more benefit to be paid most of the value early, rather than waiting for the full amount. “Early settlement discounts can be a good way to incentivise customers to pay quickly, making sure you don’t run into cashflow problems.”

7. Reduce credit limits for late payers

If you have debtors who persistently pay you late, Bibby Financial Services suggests reducing or removing any credit limit that you otherwise agreed with them, or you could charge interest as a penalty. You should include your entitlement to do this in your terms and conditions from the outset.

8. Concentrate on the larger debts

If you have numerous older debts that are consuming a lot of your credit control time, it could prove beneficial to focus on the largest invoices first. This will help you to improve your cash flow whilst you wait for payment from your other customers.

9. Call your customers

There’s a lot to be said for taking five or ten minutes to call customers and build a positive rapport, thereby increasing your chances of getting paid on time.

10. Have a credit policy

Whatever your type of business, create a credit policy that’s appropriate to your industry that incorporates most or all of the above, along with exceptions to payment terms, changing credit limits, suspending accounts and using third-party enforcement.

John Cradden
John Cradden is an experienced business and personal finance journalist and financial wellbeing content designer.