We often work with companies that have short-term working capital problems and although we are well placed to help, there are effective credit control procedures that can also help your cashflow.
By having good credit control procedures in place and collecting client payments promptly, it enables a business to manage its own supplier payments and other cashflow requirements effectively.
Most small businesses don’t have robust procedures in place to help sidestep credit control issues. In this article we’re going to look at six practical ways you can improve your credit control.
What are Credit Control Procedures?
These are split into two areas, proactive and reactive. Most of us understand reactive measures but the lesser known yet arguably more important procedure is proactive.
Reactive credit control is by far the most common and widely reported. Broadly speaking, this is chasing down debt efficiently whilst maintaining a good relationship with your client.
Proactive credit control is where a company takes steps to avoid payment issues before they arise.
Let’s look at both in a little more detail.
Here’s how to deal with problems when they’ve arisen.
Utilise your Team
Think about a team member that has a strong relationship with the client, perhaps they can leverage the relationship to facilitate a late payment.
You don’t want to jeopardise your account manager’s relationship with the client, so you can be subtle. The account manager should explain that they’re under pressure from the finance department to get a result and although you don’t want to, you feel compelled to speak with them and find a resolution.
Create a List of Late Payers
Sometimes, no matter what you do you’ll have clients that consistently cause you problems. These clients may represent a large portion of your revenue so it’s important to maintain and build the relationship, while professionally managing the situation.
Some businesses are poorly organised so helping them by issuing invoices earlier and extra payment reminders is a start. If you’re concerned about a negative reaction then you can explain that due to previous missed payments, you’ve put this in place to help them. Alternatively, you can introduce it as a new policy.
Some clients won’t react to subtleties so putting sanctions in place for late payments may be your best option.
If a client is behind on payments, look to negotiate a payment plan to bring their account back up to date before any further goods are supplied. This limits your exposure in the event of a client having severe cashflow difficulties and becoming insolvent.
Speak with your Client
Most companies that run into financial difficulty are simply facing cash flow problems. They may be disorganised but trying to pay.
Pick up the phone and speak with them. Empathise with their situation and discuss ways that you can help. This may help build a stronger relationship moving forward.
Regular contact with your client and offering help and advice will almost certainly put you at the front of the queue when it comes to payments. Clients are more likely to pay their preferred creditors first so you want to make sure that is you.
These are steps that are aimed at preventing suppliers lapsing into default.
Setting the Tone
It’s important to build a relationship with the person that pays the invoices. Sometimes this isn’t possible so make sure you’ve got a payment process in place.
This process should be communicated clearly and with a friendly tone.
Reward Early Payments
It makes sense to reward early payments and this can prove a powerful incentive for some clients.
If you decide to go down this route you may decide to standardise this across your invoices and make it easy for people to see.
One drawback is that some of your clients that pay on time anyway may take advantage of this.
Foster Good Habits
People are creatures of habit and forging good habits with your client can be beneficial, especially when it comes to paying on time.
Make sure you send out invoices on the same date each time. Ensure your invoices are clearly marked, easy to understand and have the same layout. This will reduce the burden for your client and take the hassle out of paying you.
How Can Reparo Help?
Sometimes, regardless of credit control procedures, businesses find themselves in financial difficulty. When the major banks and financial platforms fail to assist we may be able to help.
When making lending decisions we look at your specific circumstances before making a decision, taking time to understand your business and the commercial rationale behind the loan.
We base our decision on whether the loan is affordable. If it is then we can move quickly to get the funding in place. This is normally achieved within a matter of weeks.
To discuss a loan between £10,000 and £1m, please get in touch with one of the team on email@example.com or 0161 451 5714.
You can find out more about us on our website: www.reparofinance.co.uk