Credit Control: 10 Steps for Setting up a System
Written by Jamie Carr | Commercial Dispute Resolution | 24th February 2022
In order to keep your business healthy, it is vital to have a healthy cash flow. Is that easier said than done? Like most things in life, planning is key. You will already know that just being brilliant at what you do is not enough, it is making sure that you are paid for that expertise and service that will help your business grow. But how can you do that?
One of the simple things any business can do at the outset is to establish a credit control system – and stick to it. Here are some key tips in setting up a system, no matter how big or small your business is, to ensure you keep the cash coming in.
1. Work out who gets credit, and who doesn’t
Credit is a privilege – don’t give hard earned services and carefully crafted goods to an individual or company that demonstrate they cannot pay for it. You won’t lose your best customers. Good customers will be happy to earn that trust and privilege of terms as a business relationship develops. If a customer won’t deal with you on those terms, then it is likely that they are bad payers, and can become your competitors’ problem!
2. Be accurate
Many problems in debt recovery stem from invoices being inaccurate or wrong, leading to delays as they are disputed. Ask at the outset who is going to be invoiced and who is going to pay, and make sure you keep a record of the response. It is a delaying tactic for debtors to ask an invoice to be re-credited and re-issued to another group company, but if you have already checked who should be invoiced remind them and don’t wait for payment - insist payment is made by return.
3. Keep records
Keep accurate records of the invoices you have tendered to customers and the dates they have paid. This will help you with tip 4.
4. Identify trends
Once every few months, it is worth analysing who pays on time, who pays late and who is a bad payer. If a customer falls into the latter category, then it might be worth revising the payment terms you offer that customer.
5. Have a plan for bad payers
Bad payers are a problem for businesses but if having bad debtors become systemic, then this could spell the end for your business. Having a plan and dealing with bad debt quickly can help you recover money to reinvest in your business and help it grow.
6. Set a timetable and stick to it
As part of your plan, make sure that you have a process through which your credit control goes. A typical credit control plan includes sending the invoice, sending a polite chasing letter, sending a rather less polite letter and then sending a letter before claim. However you do it, try to be consistent. Your customers should know that you will do what you are threatening to do.
7. Send statements
As part of the process, sending a statement is a vital piece of evidence which you will need if you are going to take further action. The statement is also now necessary to be sent with a pre-action protocol letter for debt claims if your customer is a sole trader or individual, so make sure you keep copies and send the statement regularly.
8. Can you really do it all yourself?
As we grow our businesses, it is important to recognise when the balance of doing everything yourselves means that you are not dedicating enough time to the growth of the business. Consider getting help such as engaging credit control personnel to deal with the problem, or engaging a third party specialist such as a freelance credit controller. I promise you, you will notice the difference. If you are doing it yourself; make sure you don’t get distracted. Credit control isn’t sexy (you’d rather be making your stuff or doing what you do), but is important, make the time to do it by setting aside a few hours each week for some housekeeping.
9. Don’t wait
The longer a debt is left, the harder it becomes to recover – debtors details change, they become insolvent or they can simply be more difficult to trace. You may mislay evidence or forget relevant details which could help you or your legal advisors making a recovery for you.
Finally, there is a limited time imposed by law which gives a debtor a complete defence should you delay in issuing a claim. In general terms, a debt claim will become what is known as ‘statue barred’ six years after the cause of action accrued. There are some exceptions to this, so it is still worth taking legal advice if you have an older claim, but if you don’t delay, then this is less likely to be an issue.
10. Review your terms and conditions to reflect the market
It is worth checking that the terms and conditions you have both reflect your current practices and any changes in the market places, so it is important to check these are relevant on a regular basis. You can also amend them if you are noticing certain trends adversely affecting your business. For example, if you are finding that debtors are paying late, then consider including stronger terms for recovering costs and interest.
I hope that these ten tips help you think about ways in which your business could benefit from a stronger and streamlined credit control system.
Can we help?
Our experienced team would be happy to help with any queries which you may have and would be happy to discuss how we can help you in designing your credit control systems and terms and conditions. We have ‘off the shelf’ options or tailored credit control procedures designed specifically for you.
Speak to an Asset and Debt Recovery Solicitor
You can call Jamie Carr, Head of Commercial Disputes, on 01752 827014 or email him on jcarr@nash.co.uk
