Credit Control and Debt Collection
The credit control process can be split into two main areas. The first is how you decide or ‘control’ who you give credit to in the first place and the second is how you then collect the debt.
Why is Credit Control Important?
Both aspects of credit control are vital. Being able to identify customers who are more likely to be able to pay you back reduces the risk of non-payment. Robust debt collection processes help to ensure that when you do have problems getting people to pay, you have a much higher chance of success.
Non-payment causes cash flow problems in your business which can escalate quickly so putting credit control in place helps you to minimise any risk to your business.
The credit control process from start to finish
- Learning About Your Customer
The Credit Control Process begins before the sale is made. This is the point where you should be finding out as much relevant information as possible about your customer. The more you know, the more informed your decision to give credit or not will be. More detail at this point can also make any later debt collection easier should it come to that. The two key ways you can use to learn about your customer is through an application form and a credit check. A credit check will allow you to view your customer’s credit report and so to see their previous behaviour when it comes to paying their lenders.
Experian can provide both business and consumer credit checks – click the links to learn more.
It’s also possible to build up your own information on existing customers that can be used in the future. If you have customers with a history of non-payment to your business then ensure there is a process in place to record this to prevent it happening again.”
- Agreeing realistic terms
Once you have the above information, you can use it to decide how much credit you are prepared to give and in what time you would like it paid back. Make sure these terms are agreed and formalised up front.
- Invoicing promptly
Once the sale is made then you must send your invoice promptly if you expect to receive your payment promptly. Make sure it is accurate to avoid administrative delays and make sure that your payment terms are clearly laid out to avoid confusion.
At this stage, you should advise your customer of what your debt collection process will be should they feel to meet their payment date.
- Make it as easy as possible
The more automated you can make your payment systems, the easier it will be for your customers. Rather than expecting them to send you a cheque, perhaps give them the functionality to pay you online.
You might even want to go an extra step and put incentives in place for customers to pay you early.
- Maintain good relationships
By staying on good terms with your clients and customers, they are more likely to prioritise your business for payment because they will want to keep the option open to do business with you again in the future.
Equally, once customers have paid you – thanking them for paying you on time is likely to encourage them to do so again.