If you provide credit to your customers, you must complete credit control regularly. Most people either have not got enough time or find it difficult to ask for money. We have produced a short guide to help you contact the customer requesting payment.
It is essential to put procedures in place so that you chase customers for payment at the correct time.
Credit control is also known as accounts receivable collection.
Accounts Receivable Collection- tips to get started
The best time to sort out credit management is before you make your first sale. Talk to your client and agree on credit terms with them.
Ask for a contact name, telephone number and e-mail address for the correct person in their organisation to send invoices to.
Check that you have the correct postal and e-mail address for sending invoices (this may not be the same as a delivery address).
Find out what the process is for getting invoices paid – i.e. do the invoices have to be authorised by a manager, do they need a purchase order number and find out how often and when payment runs are carried out.
If you’ve got this information right at the start, it makes life a lot easier when you’re doing your credit control.
9 Credit Control Procedures
1 Complete Credit Checks
Before giving credit, it is worth carrying out a check on them. Some businesses offer credit checks for a small fee; you can also obtain information on any limited company from Companies House. One good way to see if a company is a good payer is to request references from other companies.
2 Issue Terms and Conditions of Sale
Your customer should receive a printed copy of your terms and conditions of sale, which will include the credit terms that you have agreed. It can be provided with your invoice or as a separate document. Many businesses include a copy of their standard terms and conditions of sale on their website.
3 Credit Control – Invoices
Always state clearly on sales invoices the payment terms which have been agreed. If your customer has quoted a purchase order number, ensure it is included, or it might be returned to you unpaid.
Before sending any invoices, ensure they are correct. If an invoice has an incorrect amount or details, the customer may reject it. Check the address that it is sent to, it may be a postal or email address.
4 Accounts Receivable Statements
Send out statements of accounts to everyone that owes you money every month. It will list all the invoices which are outstanding for payment and the total balance, which is due. Some companies ensure that statements are checked for any discrepancies.
If you run accounting software, there will generally be a facility to print them. If you do your bookkeeping manually, there are some free Microsoft Excel templates to downloaded.
5 Credit control – Contact your Customer by Phone
Contact the customer by phone a few days before the invoice is due for payment.
If you haven’t spoken to the accounts department before, introduce yourself and get a contact name, so you know whom to speak to in the future.
When you call regarding credit control, confirm the following:
Has the invoice has been received?
Does the invoice need to be authorised by management, if so has it been done?
Is there a problem with the invoice? If so, what is the query and what needs to be done to resolve the issue?
When are payment runs completed? (They may be daily, weekly or monthly). When you know details of payment runs, this will help you to time when you send your statements and when you make follow-up calls.
If you have problems getting through to the correct person or they, have not stated when the invoice will be paid, try to speak to someone above them or contact the person you sold the goods or services to.
Do not phone too often – they may start refusing your phone calls – and always be polite.
6 Credit Control – Letters
If you receive no response from either sending a statement or phone calls, try sending a letter. The letter will need to state clearly the amount outstanding. It is worth attaching a statement or copy invoice, this may save time if they cannot find the paperwork.
For an initial letter keep it formal but polite. The following is the wording you might want to use:
We refer to our Invoice No.[number] dated [date] and our various telephone conversations regarding your payment.
As yet no payment has yet been received. Could you please advise when payment will be made?
If there is a problem with the invoice, please contact us to discuss it.
If payment has been made in the last 3 days, please ignore this letter.
Some companies will only pay once they have received a ‘letter of claim’ or a ‘seven-day letter’. It will state that if the outstanding amount is not paid within a certain period (usually seven days), you will intend to sue without further notice and that any costs and interest will be passed on.
You can send this letter yourself; you do not need a solicitor to do it for you.
We have included a debt collection letter, which you can download and amend for your seven-day letter.
7 Debt Collection Letter
Using a collection agency, or employing a credit controller
If you do not have the time for credit control, it may be worth considering either using an agency or employing a credit controller.
A credit agency works like a halfway house; they will charge you a percentage of the money collected.
If you are a large enough company, it may be worth employing a credit controller; this will take out the stress and time of chasing overdue payments.
Factoring will release funds straight away; you do not need to wait for payment from the customer.
A factoring company will pay you a percentage of your invoice; this can be as much as 95%. They will then collect the money from the customer and pay you the balance less any fees agreed with the factoring company.
Factoring takes away both the stress from cash-flow and finding time for credit control. The disadvantages of factoring are you do not get all your money, and you lose control of the supplier-customer link, which can cause frictions in your relationships with your customer.
9 Credit Control – Court Action
If you have gone through your procedures of trying to collect the payment from your customer and sent a letter of claim and they have still not settled their account, further action may be needed.
Taking a customer to court should be a last resort: you are unlikely to get further business from them if you take this approach.
Try calling your customer and ask them if there is any reason for them not paying their bills. Keep your tone friendly and welcoming and propose some options – offer to accept payment over a few months by accepting post-dated cheques over the period.
If that approach fails, there are several choices on how to proceed. You can pass the details to a debt collection company, find a solicitor to do it for you or you can do it yourself by claiming the county court.
There is lots of information on how to do this on Her Majesties Court Service website. The site explains how you can claim, procedures and costs. You may also be able to make a claim online using Money Claim Online.
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