Mastering Credit Control For Business Success

As a small business owner, getting paid on time is just as important as making the sale. Credit control is the process of managing how and when your customers pay you, ensuring your cash flow remains steady and your business remains secure.

In this article, we examine how implementing credit control procedures—such as establishing clear payment terms, verifying the reliability of new customers, and sending reminders before invoice due dates—can make a significant difference. These steps help reduce the risk of late or missed payments, giving you more confidence in your day-to-day finances.

Good credit control means you spend less time chasing money and more time focusing on running and growing your business. By implementing the correct procedures, you can safeguard your profits and maintain a financially healthy business.

Credit control is also known as accounts receivable collection.

Table of Contents

What is Credit Control

Credit control is managing a company’s credit sales to ensure timely customer payment. It involves a series of procedures to minimise the risk of bad debts and maintain a healthy cash flow. Credit control, also known as credit management, ensures that your business receives payment for the goods or services it sells on credit.

Here are the main goals of credit control:

Maintain a healthy cash flow
Reduce bad debts
Improve customer relations
Improve profitability

Accounts Receivable Collection – Tips to Get Started

Proactive Credit Management: Setting the Stage for Success

Effective credit management begins before you make your first sale. Establishing clear credit terms and understanding your customers’ payment processes can save you a considerable amount of time and effort.

Key steps to take:

Open Communication: Clearly discuss payment expectations with your clients upfront to ensure transparency and avoid misunderstandings. Agree on clear payment terms, including due dates, late fees, and acceptable payment methods.
Credit Checks: Assess the creditworthiness of new clients. This helps mitigate the risk of bad debts.
Accurate Contact Information: Obtain the name, phone number, and email address of the person responsible for invoice processing.
Invoice Details: Confirm the correct billing and email addresses for invoices (these might differ from delivery addresses).
Payment Procedures: Understand your client’s internal invoicing process:
- Are manager approvals required?
- Is a purchase order number necessary?
- How frequently are payments processed?

Gathering this crucial information from the outset will streamline your credit control efforts and ensure smoother customer transactions.

Credit Control Accounting Software

Accounting software is a powerful tool for improving credit control. It helps you automate key tasks, keep track of outstanding invoices, and manage customer payments more efficiently. Here’s how it can help your business:

Save time – spend less time on admin and more on running your business
Send invoices quickly – no delays in billing customers
Automate reminders – chase late payments without extra effort
Track outstanding invoices – see who owes you money at a glance
Reduce errors – fewer mistakes compared to manual records

Accounting software helps businesses stay on top of credit control. It improves cash flow, reduces the risk of bad debts, and gives real-time financial insights by automating important tasks.

Good accounting software can save time in credit control. We recommend the following software: QuickBooks and Xero.

9 Effective Credit Control Procedures

1 Complete Credit Checks & Risk Assessment

Before giving credit, it is worth carrying out a credit check on them. Some businesses offer credit checks and produce a credit report for a small fee; you can also obtain information on any limited company from Companies House. One effective way to determine if a company is a reliable 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, including the credit period you have agreed to. This 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. Setting Credit Limits

Establish appropriate credit limits for each customer based on their credit history, financial stability, and business relationship. A credit limit helps reduce credit risk.

3 Credit Control – Invoices and Payment Terms

Always clearly state the agreed-upon payment terms and payment date on sales invoices. If your customer has provided a purchase order number, ensure it is included; otherwise, it may be returned 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 it is sent to; it may be a postal or email address.

4 Accounts Receivable Statements

Send out statements of accounts to everyone who owes you money every month. It will list all outstanding invoices for payment, along with the total balance due. Some companies ensure that statements are checked for any discrepancies.

If you run accounting software, you will generally have a facility to email and print them. If you do your bookkeeping manually, you can download some free Microsoft Excel templates.

5 Credit control – Contact your Customer by Phone

Call the customer a few days before the invoice is due. If you haven’t spoken to their accounts department before, introduce yourself and get a contact name so you know who to talk to in future.

When you call, check the following:

Has the invoice been received?
Does it require management approval, and has it been obtained?
Is there any problem with the invoice, and what’s needed to fix it?
When are their payment runs scheduled (daily, weekly, or monthly)? Knowing this helps you plan when to send statements and follow up.

If you can’t get a clear answer or reach the right person, try speaking to someone more senior or the person who placed the order.

Avoid calling too often, as this may damage the relationship. Always remain polite and professional.

6 Credit Control – Letters

If statements and phone calls don’t get a response, the next step is to send a letter. This letter should clearly state the outstanding amount. It’s a good idea to attach a copy of the invoice or a statement, as this saves time if the customer has misplaced the paperwork.

For a first letter, maintain a formal yet polite tone. Here’s an example you could use:

We refer to our Invoice No.[number] dated December 6, 2025 and our various telephone conversations regarding your payment.

As yet, no payment has been received. Could you please confirm when the payment will be made?

If you encounter any issues with the invoice, please get in touch with us promptly.

Please disregard this letter if payment has been made in the last three days.

Some businesses will only respond once they receive a stronger reminder, such as a ‘letter of claim’ or ‘fourteen-day letter’. These letters state that if the outstanding amount is not paid within a set period (usually fourteen days), you intend to begin legal action and pass on any costs and interest.

You can send this letter yourself; you do not need a solicitor to do it on your behalf.

We have included a debt collection letter that you can download and amend for your 14-day notice letter.

14 Debt Collection Letter – Pre-Action Protocol

If you remain unpaid despite issuing statements and letters, sending a 14-day debt collection letter may be an excellent next step. These were previously 7-day debt collection letter.

If you find yourself pressed for time and unable to manage credit control effectively, it might be beneficial to explore other options. One such option is to engage the services of a specialised debt collection agency dedicated to managing credit control on your behalf.

Alternatively, you could consider hiring a dedicated credit controller to join your team. This individual would oversee your effective credit control process, ensuring your financial operations run smoothly and efficiently. Both options provide viable solutions for maintaining healthy financial practices without overextending your resources.

8 Factoring

Factoring will release funds immediately; you do not need to wait for payment from the customer.

A factoring company will pay you a percentage of your invoice, up to 95%. They will then collect the money from the customer and pay you the balance, less any fees agreed upon by the factoring company.

Factoring relieves cash flow stress and allows for time to focus on credit control. However, the disadvantages are that you do not get all your money and lose control of the supplier-customer link, which can cause friction in your relationships with customers.

9 Credit Control – Court Action

If you have gone through your credit control procedures to collect payment from your customer and sent a letter of claim, and they still have outstanding debts, further action may be necessary.

Taking a customer to court should be a last resort. If you do, you will likely lose their future business.

Try calling your customers and asking if there is any reason for them not paying their bills. Keep your tone friendly and welcoming, and propose options, such as accepting a payment plan.

If that approach fails, you have several options for proceeding. You can pass the details to a debt collection company or find a solicitor to do it for you, or you can do it yourself by claiming in the county court.

The government website provides a wealth of information on how to do this. The site explains how to claim, the procedures involved, and the associated costs. You may also make a claim online using Money Claim Online through the government website.

By implementing these procedures, businesses can significantly enhance their credit control efforts, minimise bad debts, and maintain a healthy cash flow.

10. Early Settlement Discounts

An early settlement discount is when you offer customers a slight reduction in their invoice if they pay before the due date. For example, you might offer a 2% discount if payment is made within 10 days, rather than the standard 30 days.

This method can improve your cash flow by encouraging faster payments and reducing the risk of bad debts. It also saves time chasing overdue invoices.

However, before offering discounts, think about the impact on your profit margins.

Credit Control Processes Conclusion

By implementing proactive measures and following best practices, you can safeguard your cash flow, minimise bad debts, and build stronger customer relationships.

Remember, credit control is not merely about collecting payments; it’s about establishing a framework that fosters financial stability and supports sustainable growth. From conducting thorough credit checks to setting clear payment terms and utilising accounting software, each step is vital in ensuring your business thrives in the long run.

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