Turn your credit control from a chore to a competitive advantage by leveraging psychology, automation, and a firm but fair approach to ensure your business gets paid on time, every time.
What is credit control in accounting?
Credit control is all about applying pressure to your customer’s subconscious. Data proves that persistent, methodical, regimented credit control improves debtors’ days by 16 days on average, and saves 15 hours in credit control (average for SME businesses).
You will have suppliers who have such systems, and your subconscious directs you to pay these people first, because you do not want to go through the discomfort of fielding calls and emails telling you that their invoices have not been paid on time. You must create the same drivers in your own customers’ minds.
Here is how you improve credit control in your business.
#1 Check new customers
Create a checklist to ensure the following is followed on all future new customer applications:-
- credit application form, including trade references
- credit agency rating report, with credit limits set in agreement with the recommendation
- Proforma invoicing for all works in excess of the limit
- Formal T&C’s are provided to every new customer, and agreement to them is mandatory
- Subscription to credit monitoring for all customers
#2 Get your facts correct
Ensure the exact name of the customer is recorded in your accounting system, and therefore on the contractual invoices. Courts can deny a claim if invoices are incorrectly named. It also provides any debtor to whom a winding up petition has been made, with an excuse to dispute the debt, and hence prevent a court from issuing the petition.
#3 Systemise credit control
Move away from the informal, ad hoc, manual chasing of invoices, and integrate an automated credit control system.
Use software such as Xero/ Chasr / Satago so an automated, constant and consistent approach to chasing debt is adhered to.
Where a client breaches their credit limit be loyal to this and put the account on hold or proforma until they return with the set limit
#4 Educate your customers
Credit control is an education process for your customers. There’s nothing wrong with being friendly with your customers, but they are not your “friends”. You are educating them, in a businesslike manner, that:
- you approach credit facilities professionally and diligently
- you will meet their expectation on service, and they must meet yours on payment
- late payment will not be tolerated, and any invoices over their due date follow a set procedure (on-stop>formal warning>legal action)
- you are not an extension of their overall borrowing requirement to run their businesses
- “hard luck” excuses and “working class hero” stories are ignored.