One of the top reasons that businesses fail is due to poor money management.
The last couple of years have added further burdens to businesses, especially small companies and start-ups which are often the first to fall prey to an unstable economic environment. While we can’t help with all the tripwires of the modern business world, we can offer some sage advice on financial matters.
Smart companies will know exactly where the money is coming from and where it is going. They will have a contingency plan in place for a rainy day, and they will rely on professionals to assist them in the financial arena.
The fact is, poor accounting and credit control practices place you on a high-risk road to business failure. To help you mitigate these risks, we have drafted this definitive guide for credit control best practices.
...poor accounting and credit control practices place you on a high-risk road to business failure.
Credit control best practices
Small businesses are not held to the red tape and organisational processes of their corporate counterparts, so they can basically do what they want with their finances. However, there is a solid reason that bigger companies adhere to strict standards in their accounting practices. It’s because they work.
Create a credit control process
Yes, it may take a little time to get the right processes in place and documented, but you can be certain that they will pay dividends down the line. Late payments and bad debt can cripple a smaller business, but these can be avoided in many cases.
Credit terms
Your terms and conditions for granting credit should be clear and detailed. Your customers should all have their own up to date copy which is signed and dated. This is a legal document and will dictate how effectively your legal team can collect outstanding money.
Research your customers
It’s been said that if you want to know how a person is going to behave, then look at their past. This blanket statement may not be true for everyone, especially after the financial ravages of COVID, but it can offer some valuable insight.
Avoiding the risk of slow-paying or delinquent customers is the first step in conducting due diligence. If you would like to extend credit to a business or customer with a questionable credit history, then do so incrementally, keeping their credit limit small and watching their financial behaviour closely.
Payment processes
Establish a systematic and transparent process for invoicing and collecting payments. For example:
- Ensure that invoices and statements are accurate.
- Make certain that all relevant information can be found on the statement, including banking details, payment terms, copies of invoices if applicable, and due dates.
- Send out invoices for payment regularly on the same day of the month.
- Send payment reminders via SMS or email on the day the invoice is due.
- Send polite communication as soon as the invoice is overdue.
- Establish when the customer will get a phone call to remind them to pay.
- After a predetermined period of time, inform the customer that you will be handing their debt over to a collection agency.
- If payment is still outstanding, then allow the debt collector to perform their duties.
Train your team
Systems and procedures are not much help unless your team adhere to them. Take the time to train your accounting team so that your carefully established processes are followed to the letter. Ensure that they understand the reason for this and how it benefits the company.
Establish a good relationship
Credit control isn’t all about getting your money back. It’s also about creating open, positive relationships with your customers so that they will feel comfortable talking to you if a problem arises. We have all had times when the unexpected happens, but it doesn’t make us a bad customer forever.
Maintaining a friendly and professional relationship with your customers means that you are likely to keep them as opposed to handing them over to debt collectors. It’s hard work getting new customers these days, so looking after the ones we have makes financial sense.
Automate your systems
Running your business from an excel spreadsheet may be cheap, but it may not be the most effective way to ensure accurate credit control.
Automated systems go a long way towards streamlining your processes and save you a whole lot of time. The accuracy and short turnaround time of using automated systems mean that you won’t frustrate your customers with incorrect information, and your records will always be error-free and up to date. It also allows you to render awesome customer service and be able to respond to customer queries quickly.
Encourage early payment
Companies that offer incentives for early payment are more likely to get paid first before the money drains from the customer account. Small discounts on the invoice can make the difference between giving up a small percentage and getting a lump sum in quickly.
The effects of early settlements can be measured against your overdraft fees, the time your team spend chasing up customers, and the risk of non-payment.
Take action
If your customers see that your credit control processes are a little slack, you can be sure that they will take advantage of this. Keep a close eye on risky accounts, and if an invoice is outstanding then follow your collection procedure immediately. The longer it takes for your team to follow up, the less likelihood there is of payment.
Make payment simple
There are a host of ways for businesses to collect payment in today’s tech-savvy world. Why not make use of them? When you ensure a frictionless payment process it removes obstacles and allows your customers to pay quickly, and in the way that they are comfortable with.
Talk to the professionals
We all want a healthy cash flow and fewer debtors. Therefore it makes sense to work with the people who know how to get these critical processes right, and who can take the burden off your shoulders.
If you knew that you could get paid faster, reduce bad debt, and enjoy the peace of mind that your credit control process is in good hands - would you?
If this sounds like the solution you’ve been looking for, then book a demo with Chaser and let us keep you in the black.
