As your business starts to grow, you will find that it may be time to implement a credit system in your business. This allows customers to have a credit facility to buy goods from you. But this can be detrimental to your business if it is not effectively and diligently managed. That’s why today we are going to run through the key principles of effective credit control that you need to ensure are embedded in your business.
Implementing a credit control system in your business not only benefits your customers; it can also help your own cash flow. It also reduces the need for your customers to pay any additional fees; on other credit facilities such as loans or overdrafts. Having the cash from these creditors will also benefit your own situation when it comes to your credit facilities with your suppliers.
And a key part of running a solid, reliable, and robust credit control system revolves around the relationships you have with your customers. The more reliable, open, and honest your relationship is with your customer, the less risk you have of payments being missed and/or late. It can also aid in helping you with sales campaigns by allowing them a credit facility subject to terms and conditions.
Things to be mindful of
So now we’ve explained, in a nutshell, what credit control is. How do you implement effective credit control into your business? What are the things you need to be mindful of? Well, of course, the first concern you may have from the outset is ensuring you get paid. After all, if a few customers fall behind or refuse to pay, this can have a domino effect.
There is a way however to manage this by ensuring that you have the right processes in place. And it’s important to remember that credit control is as much about the benefit of improving existing relationships with your customers, as it is about chasing outstanding bills. The first thing you want to ensure is that your invoices are 100% legally binding. Any discrepancy in these could lead to your case falling apart.
When it comes to securing a late disputed invoice, you have to be firm as a business. The law is on your side and you have tools at your disposal that can help speed up the process. If an invoice is deemed as being late, you are entitled, if you like, to add late payment interest costs and compensation on top of the outstanding balance.
Time is also of the essence and is a key thing to keep an eye on as part of an effective credit control process. You should escalate any overdue invoices as soon as possible. There are businesses that specialise in recovering debts for businesses like yours. This may come at a marginal cost, but will provide you with the reassurance that you’re going to be able to recover a lot of the balance.
Who should you hire for your credit control?
When it comes to implementing a credit control process in your business, you are going to need people skilled within this niche to keep on top of this for you. And you are then left with two main options. You can either go ‘in-house’ which requires recruiting the right set of people. Or, there are also businesses that specialise in allowing you to outsource your credit control.
Each of these has its own pros and cons and it all depends on your own individual business situation. If you are a business with a small number of staff, it may be beneficial to outsource. This is in order to keep your focus on areas such as product development and sales. But at the same time; means that you’re losing part of the advantages of having it in-house where you can micro-manage a lot more.
Key principles to remember about effective credit control
Here are some key factors to remember when it comes to credit control that won’t set you wrong as a business:
- Do your background research. It may be worth performing credit checks on customers before allowing a credit facility. In order to see if they have a history of missing invoices to reduce your risk as a business.
- Your sales ledger will become your best friend. You, in addition to whoever is your credit controller, should be reviewing the sales ledger each and every week. In order to anticipate what payments you have coming in and going out.
- Set your expectations clearly to your customers. Be crystal clear with timescales, credit limits, and the repercussions of not settling any outstanding payments on time.
- As we’ve already touched upon, have a firm and robust process in place for your business. When it comes to chasing outstanding payments from customers, always know what the next steps are.
Want to know more?
Hopefully, this blog today has shone a bit of light on the area of credit control and the benefits it has to a business. If you have not yet implemented it into your business, as you may now know, there are a lot of things to take into consideration before implementing it. And it is also important to both know the benefits and risks of credit control and to always be mindful of the downfalls should you not be effectively managing them.
We have years of experience in helping businesses and their respective finances and are on hand to help you should you want to know more about whether a credit control system is right for your business and how it should be correctly set up for your business in particular. Get in touch today to find out more and we can have a chat today to discuss how a credit facility can help your business grow and help you keep a tighter leash on your finances within your business.