As a business owner, managing cash flow can be a constant challenge, particularly when it comes to ensuring your customers pay on time. Drawing from my experience as a finance director, where my team collected nearly £20 million per month, I've found that proactive credit control is essential. Here, I share my top tips for managing credit control processes to help you ensure timely customer payments and maintain a healthy cash flow.
1. Know Your Customer
Proactivity is the key to successful credit control. Start by getting to know your customer thoroughly. Beyond basic contact information, utilize agencies like CreditSafe or Dun & Bradstreet to run business credit reports. These reports provide valuable insights, such as turnover, asset values, debts, and any history of payment issues. Although the information may be limited for small businesses, it’s still beneficial to have an overview.
2. Negotiate Payment Terms and Credit Limits
Negotiate two crucial aspects with your customers: payment terms and credit limits. Standard payment terms in the UK are 30 days end of month, but this can vary. Research your competitors’ terms and discuss with your customers to find mutually agreeable terms. Additionally, set a realistic credit limit based on the customer's needs and your comfort level. Credit agencies often provide recommended limits and terms, which can guide your decisions.
3. Solid Terms and Conditions
Ensure your terms and conditions protect your business. Here are three essential clauses to include:
Transfer of Ownership: State that goods remain your property until full payment is received. This allows you to reclaim goods if the customer fails to pay.
Failed Payment Clause: Specify that you can halt work or delivery if payments are missed and that you are not liable for any resulting losses.
Interest on Late Payments: UK law allows businesses to charge interest on overdue payments. Include this clause to deter late payments and safeguard your cash flow.
4. Timely Invoicing
Send invoices at the earliest agreed-upon date. Prompt invoicing gives your customers ample time to raise queries and ensures there are no delays in the payment process.
5. Courtesy Calls
Around 10 to 14 days after issuing an invoice, contact your customer to confirm receipt and address any queries. This proactive step helps resolve potential issues before the invoice becomes overdue. If the customer confirms everything is in order, request a promised payment date.
6. Handling Non-Payments
If a customer misses the promised payment date, follow a soft yet firm approach. Wait a few days due to potential banking delays, then call to check for issues or offer assistance. Distinguish between late payment risks and non-payment risks. For late payments, apply gentle pressure to expedite the process. For non-payments, consider stopping further service or product delivery to avoid additional risks.
7. Small Claims Court
For unresolved debts up to £10,000, you can resort to the small claims court. The process involves filling out an online form and providing evidence of delivery or service, along with all communication with the customer. Issue reminder, warning, and final letters before initiating legal proceedings to ensure the court acknowledges your efforts to resolve the matter.
By following these tips, you can establish a robust credit control process, ensuring timely customer payments and maintaining a healthy cash flow. For templates and additional resources, visit profit.com and check the free resources section.
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