Why worry about Credit Control?
As many businesses know, there are a large number of potential customers out there who can cost your business a great deal of time and money by not paying their debts, this may be either on accident or deliberately.
When you think about it there's only one thing worse than having no work - and that's having plenty of work, but not getting paid for having done it.
In order to reduce the risk of this happening to you, you should really think about taking some credit control precautions.
In most businesses it is normal practice to carry out a credit check on any new customer requiring credit terms. Depending on the size of the contract, this reference should then be discussed with your advisers before signing a contract to supply the customer with any work or goods.
In seems to be a fact that you cannot afford to rely solely on the apparent size of the organisation (or claims about it's size). As you will no doubt find out, even the largest companies don't always pay their debts on time - in fact sometimes it seems that the larger the business the longer it takes to pay invoices.
Once you have decided to extend your new customer credit terms, it is important to set them a credit limit and notify them of your terms of business upon which you are prepared to do business with them (for example how long will they have to pay) and the credit limit that has been applied. You should also ensure that these terms are clearly stated in your contract and also appear on your invoices.
Don't forget that as a business you are allowed to charge business customers interest on outstanding invoices. The Better Payment Practice Campaign website contains more information about this right.
Once the credit limit has been set be prepared to withhold further credit from any customer who has exceeded their credit limit or whose account is significantly overdue. Be prepared to turn business away, although if the customer is not paying their invoices is it the sort of business you want?
It's amazing how many businesses for not check that the details on their invoices are accurate, since errors will not only damage your credibility, but will frequently be used by the customer as an excuse for delaying payment.
You should be prepared to send invoices as soon as possible - not only is this necessary to establish the correct date for VAT and tax purposes, but it also starts the credit period clock ticking.
Ensure that your debtors listing from your accounts system shows the age of all outstanding debt. This allows you to identify possible risky debts and lets you deal with this at an early stage.
Chase overdue debts at regular intervals, keeping a log of all reasons for non payment. At Forest Software we start by using the telephone to request payment, and after the second phone reminder we then send email and the telephone, after another couple of reminders we switch to using recorded letters. At each stage the tone of the reminders get stronger (from "have you overlooked the payment" to "Payment is due immediately or further action will be taken").
It can be useful to bring the problem of the outstanding to the attention of the actual user of your services or products and quietly suggest to them that you cannot guarantee future service and any more deliveries until the outstanding amount has been paid.
Be aware that chasing outstanding debts can often require as much effort as winning the original contract. However without the extra effort the contract is actually worse than worthless, since it has cost you money but has earned you nothing.
Ultimately if your customer persistently fails to pay the outstanding amount it may be appropriate to make a claim through the small claims court, a relatively simple and inexpensive process that frequently yields the desired result. You should note that this process may not apply in Scotland due to different laws, however we have used it successfully in England.
At the end of the day, when thinking about credit control just remember that your customer is using you to obtain a loan at zero percent interest. If this is why you are in business that's fine but very few businesses would survive like this.