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Credit control can be a very effective way of maintaining cash flow, but it does come with its own set of risks and pitfalls. To learn more about how your business can use credit control effectively, read on…
If your business is looking to ensure that customers pay on time, then you may want to consider credit control as a potential avenue to explore. Put simply, credit control is a business strategy that helps businesses to avoid cash flow and debt problems. It’s done by identifying and giving ‘credit’ to customers or clients who are able to pay back on time.
While identifying customers who can pay your business back on time might seem like a no-brainer, credit control isn’t always that simple. In many instances, it can prove to be a minefield for many businesses, with the potential to be incredibly time-consuming.
So, if you’re looking at recovering debts for your business, then you’ll want to make sure that you pay attention to the following credit control tips…
10 Top Credit Control Tips
1.) Have a Clear Process
Many businesses trip over at the very first credit control hurdle – creating and following a clear process. Businesses that have an un-coordinated process will struggle to keep track of when customers are due to pay them back, which is inevitably going to lead to cash flow problems further down the line.
So, create a clear, easy to follow process for credit control is absolutely essential. Setting out a process which records how much specific customers are due to pay and when they need to will make planning and managing commercial finances that much easier. Everyone likes to be one step ahead, don’t they?
2.) Research Your Customers’ Credit Management
Admittedly, researching customers’ credit control processes will take some time and resources, but it is certainly worth it.
By researching your customers and clients thoroughly, you can streamline your credit control process. So, you can assess which customers pose potential risk and which ones are deemed to be safer to deal with.
3.) Focus on Larger Debts Where Possible
If your business has multiple customers in debt, then it can be exhausting to chase down every debt one by one. So, what can you do? Focus on the largest debts first!
It will much more beneficial for your business to do this, as it can support your cashflow while you await payment from any other customers.
4.) Have Clear Terms and Conditions (Without Loopholes)
Loopholes can be a nightmare – if you’re on the wrong end of one, that is. So, when it comes to effective credit control, it’s imperative that you create transparent terms and conditions that cover every possible eventuality.
This might be tricky without some external support, so consider taking legal advice from a commercial solicitor. They’ll help your business to create watertight credit agreements.
5.) Create Regular Forecasts
One of the keys to credit control is being proactive, rather than reactive. Of course, it’s not as if you can rub a crystal ball and see into the future, but your business can create accurate predictions about what your cash flow will look like moving forward.
You can create simple credit control forecasts by using the financial data at your disposal, including best-case and worst-case scenarios, and historical data.
6.) Create a ‘Watch List’
Think of this as the corporate version of Santa’s Naughty List. Of course, your business should only be lending to customers and clients that you can trust, but keep in mind that situations can quickly change.
If a customer has been late in making a payment, or there have been any other issues, make a note and add them to a watch list. The issue may have been a one off, but if not, you have a record to refer back to.
7.) Make Early Payment Simple for Customers
If you want to make sure that your customers are able to pay your back, you need to make things as simple as possible for them.
You can do this by providing alternative methods of payment, staying in constant communication, and keeping your terms and conditions clear to avoid them from getting confused. Hopefully this way you can be sure that your customers will pay on time, meaning your credit control system is working effectively.
8.) Don’t Delay Invoicing
It sounds obvious, but many businesses tend to gloss over the task of invoicing, particularly in small-scale operations. So, don’t ever delay your invoicing! It’s the key to ensuring that your credit control system is working as intended and that you are able to maintain a positive cash flow.
The best way to stop your business from forgetting to invoice your customers? Automate the process! That way, it’s one less thing to worry about, and should be taken care of without you having to intervene.
9.) Maintain a Positive Working Relationship with Your Customers
This doesn’t mean that you should try and be best friends with your customers and clients. Maintaining a positive working relationship means staying in good terms with a customer so that they are more likely to prioritise your business for payment.
Simple steps, like thanking a customer for their payment, shows that you are eager to maintain the relationship. Manners cost nothing, after all!
10.) Consider Joining a Credit Circle
If you want to check the financial credibility of your customers, becoming a member of a credit circle might be wise. Credit circles will give your business the opportunity to share and analyse current trends with other companies.
Different trade and industry credit circles could provide important information about prospective clients. Who knows – they could hold the key to striking up reliable relationships, moving forward.
Are You Looking to Implement Credit Control for Your Business?
If your business is looking to improve its cashflow, then these credit control tips should put you on the right path.Have you got any credit control tips of your own? If so, then feel free to leave a comment below!