Credit control is the process of managing a company's outstanding debts and ensuring that customers pay their invoices on time. While it may seem straightforward, credit control can often present challenges for businesses of all sizes.
Keeping cash flow steady and minimising debt are key priorities for any business, and effective credit control is crucial in achieving these goals.
This makes it essential for companies to identify and address the pain points in their credit control process to ensure smooth and efficient operations.
This guide explores some common challenges businesses face in credit control and suggests strategies for overcoming them.
One of the most significant challenges in credit control is the reliance on traditional manual methods. This includes using spreadsheets, paper-based records, ledger books and manual follow-ups to manage customer accounts and debt collections.
While these methods may have worked in the past, they are now proving to be inefficient and time-consuming for businesses, leading to common pain points such as:
If these examples seem familiar, then it may be time for your business to consider implementing more efficient and modern credit control strategies.
Investing in credit control software or cloud-based solutions can help businesses overcome these roadblocks and improve their overall credit control process.
Late payments are undoubtedly one of the most significant challenges most businesses face in credit control. According to a survey by the Federation of Small Businesses, late payments cause 50,000 businesses to close each year, and the UK economy loses around £2.5 billion annually due to this issue.
The ripple effect of late payments can be damaging for businesses, leading to:
To overcome this challenge, businesses must have efficient credit control procedures that include clear payment terms, timely follow-ups, and a streamlined process for escalating late payments.
Open and effective communication is crucial in credit control, but it can be a delicate balance between being persistent and maintaining professionalism.
While businesses must follow up on late payments, they must maintain a good relationship with their customers and avoid damaging their reputation.
Some strategies for achieving this balance include:
Clearly stating payment terms from the beginning can help prevent any misunderstandings or disputes in the future. This includes specifying due dates, payment methods accepted, and consequences for late payments.
Leveraging technology can make credit control more efficient and less time-consuming. Automated reminders and scheduled follow-ups can help businesses stay on top of late payments without being too intrusive or overwhelming for customers.
Rather than sending generic reminders, businesses can personalise their communication with customers to show that they value the relationship. This could include addressing them by name and acknowledging any previous positive interactions or purchases.
While email is the most common form of communication for credit control, businesses should also consider utilising other channels, such as phone calls or text messages, for more urgent or essential reminders. This can help get a quicker customer response and show that the business is serious about collecting payments.
Transitioning to more modern, digital-forward credit control methods helps overcome common pain points and improves overall efficiency and accuracy.
Some key features to consider when choosing credit control software or solutions include:
These are just some of the many ways technology can help streamline credit control and improve overall efficiency. As businesses continue to face the challenge of late payments, embracing digital solutions could be a game-changer for their financial health and success.
Accurate prediction in credit control is key to mitigating potential risks and preventing late payments. Businesses can take proactive measures to ensure they are aware of potential issues and can address them before they become problems.
Some ways to predict and prevent late payments include:
Before entering a business relationship, it is essential to conduct credit checks, especially for new customers. This helps businesses understand their creditworthiness and the potential risk of non-payment. Rather than relegating them to the onboarding process, credit checks should be an ongoing practice for all customers.
Based on the results of credit checks, businesses can set a credit limit for each customer. This helps mitigate risk and ensures that businesses do not overextend themselves with credit.
By tracking and analysing customer payment data, businesses can identify trends and patterns in payment behaviour. This can help them anticipate potential issues or delays and proactively address them before they result in late payments.
Businesses can implement stricter credit terms for customers deemed high-risk based on credit checks and payment trends. This could include shorter payment deadlines or requiring upfront payments for larger orders.
By taking proactive measures to predict and mitigate risks, businesses can significantly reduce the impact of late payments on their cash flow and overall financial stability.
Payment plans can also be implemented for customers who are struggling to make total payments on time. This allows them to pay in instalments over a set period, making it easier for them to manage their cash flow while still fulfilling their payment obligations.
While the tools and strategies mentioned above can significantly improve credit control processes, investing in the training and development of your accounts receivable (AR) team is crucial.
This helps them become more efficient and effective in their roles and empowers them to handle challenging situations confidently.
Some areas to focus on when training AR staff include:
Investing in the training and development of your AR team benefits the business and shows employees that they are valued and invested in, leading to higher job satisfaction and retention rates.
Proactive management in credit control and AR processes is crucial for businesses to maintain financial stability and avoid the negative impacts of late payments.
By integrating technology, taking proactive measures, and investing in staff training and development, businesses can implement a comprehensive digital credit control strategy that significantly improves efficiency and mitigates risks.
Traditional skills and wisdom, combined with cutting-edge technology, can help businesses navigate the challenges of credit control effectively and stay on top of their accounts receivable processes.
With the right tools and strategies in place, businesses can experience improved cash flow, reduced late payments, and, ultimately, greater financial success.
Chaser's award-winning credit control software offers businesses a comprehensive solution to streamline credit control processes and improve cash flow. To learn more about how Chaser can benefit your business, book a demo or start your 14-day free trial today!