The YFT guide to credit control for SMEs

Cash is king, so making sure that money is sitting in your bank account rather than those of your customers is a key skill for any business owner.

Although it might seem a bit alien to you at first, don’t worry. Credit control is a skill like any other and you can learn to handle debtors fairly but firmly and make sure you are getting paid on time.

So we thought it would be a good idea to give you some tips from people who have been working in credit control for a long time so you don’t have to learn from your mistakes!

In this article we are looking at;

  • Credit control is a state of mind
  • Be organised
  • Understand the rules
  • Set your terms (and stick to them)
  • Let your system be your friend
  • Think about outsourcing

Credit control is a state of mind

If you want to get control of your debtors then you need to adopt a credit control state of mind.

One of the things we’ve noticed is that British business owners seem reluctant to chase money when it is owed. But the simple fact is that what you are chasing isn’t the customer’s money, it’s yours.

So understanding that what you are really chasing is your own money will put you in the right headspace to do something about it.

Once you realise how important cash is to your business, then it tends to colour everything you do from putting payment instructions on your invoices to pulling up your aged debtors listing on a daily basis.

Be organised

The number one tip for any business that wants to get its credit control in order is to be organised.

In fact, credit control isn’t brain surgery, it is more a case of being organised and having a clear and time-bound process.

Make sure you enter and send invoices promptly, ensure you have clear and communicated credit terms and have a process for chasing overdue accounts.

It helps also if you have a schedule. For example, Tuesday is credit control day.

On Tuesday you come in, you review your aged debtors, you send out reminders and you chase money.

Although this might initially fill you with dread, we can tell you that once you get into it, it becomes second nature and you actually end up really enjoying the job.

Understand the rules

There are specific rules around collecting money that you have to stick to, otherwise, if it ends up going to court your claim will fail, so make sure you educate yourself.

You’ll need to have a set of terms and conditions and these must be supplied to your customer before you start work. It is always sensible to use a commercial lawyer to draw these up for you.

You’ll have to make sure if you are working on a contract that all the payment terms are specified and that you invoice correctly.

And if you have to chase money, then there are specific ways to do this without breaking the rules.

If you want help in designing a foolproof credit control process then call us and we’ll be pleased to assist.

Set your terms (and stick to them)

To carry out credit control you need to have a set of credit terms.

This is simply your choice of what rules you will apply when you sell goods.

For example, you may decide that you are going to allow customers 30 days credit, or you will allow up to a certain amount on account.

You might also want to do credit checks on potential customers before you grant them credit facilities and if you use an invoice factoring or credit insurance company they will almost certainly require this as standard.

Don’t be fooled though into thinking that you have to accept your customer’s terms.

Often customers will tell you that their standard terms are something like 90 days. The power though is with you. If you don’t want to accept that then you don’t have to.

Admittedly, you may want to offer more generous credit to customers who place a lot of business with you but just remember that the more credit you allow, the more working capital you are going to need.

The point here is that you need to make a strategic choice over your credit terms rather than being pushed into accepting something you are not comfortable with.

And if you can, get customers to start out paying before ordering. We are much more used to that now as a society and so you could find that this will work better than you expect and it is certainly much better for your bank balance and credit risk.

Once you have set your terms then stick to them consistently.

If you set a 30-day payment date with an account limit and then chase on day 31 then your customer won’t be upset.

But if you leave it until day 55 one month and then chase on day 31 the next, then this is likely to antagonise people as they don’t know where they stand.

Let your system be your friend

There’s a lot to think about there but the good news is that modern accounting systems are set up to be your friend.

You can use them to block sales if the customer exceeds their credit limit, automatically send out statements and reminders and give you reports that will show delinquent accounts together with the phone number of the person you need to speak to so you can get it sorted.

Systems today are so capable that there really isn’t any excuse for being too busy to concentrate on credit control as in many cases, your software can do the work for you.

We’re accounting system experts so if you need help setting yours up then give us a shout and we’ll help.

Think about outsourcing

Few things lend themselves quite as well to outsourcing as credit control.

It can be remarkably cheap to outsource and you’ll find that a specialist company will have all the knowledge you need to set up your credit terms and documentation.

In the early days, small businesses can’t always afford someone to work on credit control so outsourcing means that you will get a specialist to do the job efficiently and at a cheaper price.

As the specialist does credit control all day, every day they are much quicker, have a much better in-depth knowledge of the process and they are very professional in their approach.

Later, as the business grows you may decide to employ someone in-house and for a larger business, this makes sense.

Credit control doesn’t have to be a chore

Credit control is a really important part of being in business because it ensures that you aren’t missing out on cash that should be available in your bank account.

Having a great credit controller reduces the risk of bad debts and your process should stop you extending credit to untrustworthy businesses.

But we’d be wrong to suggest that it is a sexy part of running your own business, which is why many business owners shy away from getting to grips.

If you set up your system correctly, the software can take away much of the drudgery that credit control can generate.

And when you get into the swing of it, credit control can actually be an enjoyable job.

How do we know this?

Well, one of the services we provide for our clients is as an outsourced credit control department so we have specialists who do it day in and day out!

So if you still don’t want to do your own credit control or you are simply too busy then why not think about outsourcing to us?

Call us now and let’s talk about how we can help you keep control of your cash.