What is credit control? It is the process of collecting cash that the business is owed by a customer. Many businesses run out of funds because customers do not pay on time. There are ways in which you can reduce this risk and try to get money paid earlier.
Complete a credit check on the company
Before you offer a new client credit, it is worth checking their credit rating. There are several companies that offer this service for a small charge. Many businesses request that a credit application form is completed. This form will require information on business details, person to contact, where to send invoices, bank details and 2 trade references. Ensure that you do request the references; they are the best people to know the business and wether it is worth offering credit.
Make sure you agree a credit limit and payment terms. If these terms are not kept, you may have to consider reducing or removing the credit account.
Credit Control Procedures
It is worth agreeing in your business the procedures that your company will take to collect the money. It is no good just sitting back and hoping that the money will be paid on time. Here are some ideas that you may want to include.
- Sales Invoices – Ensure that invoices are sent out as soon as possible and as much detail is included. The payment terms and a due date need to be included on the invoice.
- Statements – Send out customer statements on a regular basis, these can act as a gentle reminder that you are owed money.
- Phone calls – Depending on your customer you may want to phone to ensure the invoice has arrived and is being processed. Phone before the invoice is due to ensure that everything is in order for the payment to be processed on time. If payment has not arrived on time you will need to phone again. It can be very difficult getting the balance between ensuring the payment is made on time and phoning too often.
- Credit Control Letters – If payment is late, it is worth sending a reminder letter. If you still do not receive payment then it is worth send a 7 day letter, stating that if payment is not made then legal action will be taken. Although this may sound rather harsh, if a company is short on finance they will delay payment until they receive this letter. Here is a template for a 7 day letter.
- Legal Action – If you receive no response from a 7 day letter you will have to consider the options for taking legal action to recover the debt. There are a couple of options available, either do it yourself with Money Claim Online or get a solicitor to do it for you. Using a solicitor or debt collection agency is more expensive, but will save you time in preparing some of the paperwork.
What is Credit Control – Late Payment
If payment is continually made late then it is worth reviewing the credit terms that you have agreed with you customer.
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