Credit control management is fundamental to all businesses to avoid cash flow problems, to effectively manage your business cash flow and to ensure your customers pay within your credit terms.
Managing you company cash flow is one of the fundamental aspects of operating a business. Many businesses fail due to poor cash flow caused by payment delays and bad debts mounting up over time.
Credit control is simply about making sure your customers dont take too long to pay you.
All invoices you generate should have payment terms stated. These are the number of days you will allow them to pay your invoices.
The credit limits you set are up to you. Many people set these credit terms as 7 days, 14 days, 30 days or even 60 days. If your customers take longer than your payment terms to pay you, youll need to chase them for payment. This is called credit control.
The ultimate aim of credit control is making sure you have cash coming in, when you are supposed to, avoiding cash flow issues and keeping your business cash flow healthy.
Have a systemised approach and processes for credit management will, almost certainly save time compared with an ad hoc approach to credit control.
Ensuring your credit control is consistent and systemised (i.e. your accounting software could send out payment reminders automatically) will ensure your customers are chased regularly.
Limiting the amount of time you spend personally chasing payments and catching-up on admin will save you money. If customers know youll chase them if they are late paying they will hopefully be more likely to pay on time in the future. Payment on time will increase cash flow and ensure you dont incur late payment fees due to a lack of money in the business also.
A good credit control process will ensure you get paid quicker, can pay your own suppliers on time, avoid late payment and ensure you maintain a positive cash flow in your business.
The more customers you have, the more your exposed to credit risk. By managing your credit control, you remain in control of managing and mitigating risk. By managing cashflow, chasing unpaid invoices and implementing a comprehensive credit control process means youll be able to better absorb losses or bad debts and have less risk of your business failing.
There is nothing worse than worrying about money in your business, unpaid invoices, cashflow and your customers not paying you on time. By putting in place sensible, proactive and consistent credit control procedures, you will hopefully have less to worry about as you know youre on top of your admin and are doing everything you can to keep your business cash flow healthy.
Having good cash flow means you wont be reliant on short-term credit such as credit cards or loans that may attract high interest rates.
Overdue payments are one of the biggest reasons that businesses suffer cash flow problems. Implementing effective credit control helps mitigate some of this risk, helping you to avoid late payments or non-payment and will help you to keep your cash flow healthy and will enable you to make longer term investment decisions to grow your business.
You or your credit controller should understand your sales ledger thoroughly. You should be checking your sales ledger weekly and have a clear view of upcoming and outstanding payments so you can address issues as soon as possible.
Before you take on a new customer you should undertake a credit check on them. This should show you their typical payment behaviour, understand if they regularly pay invoices late and if they may be a risk to your business.
Be clear on your terms, your payment timescales, charges and action for late payment or discounts offered for early payment and reiterate this constantly to customers on invoices and when emailing the invoices to your customer.
An effective credit control process will have someone responsible for chasing payment and a system in place to check the sales ledger, follow up on late payers and escalate any long-term issues via an agreed process.
Having honest conversations with your customers about payment expectations and maintaining good relationships can be the difference between being paid and not being paid. A good relationship also makes chasing any overdue invoices much easier.
Getting paid on time and chasing overdue invoices is much easier if you set expectations in advance. Having clear processes for collecting payments, credit scoring potential customers, good communication and strong customer relationships all help your credit control.
If youre struggling with credit control and need help and advice, then contact us today, call us on 03300 886 686 or email us on enquiry@dnsaccountants.co.uk.
Any questions? Schedule a call with one of our experts.
Sumit Agarwal Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.
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