Whether you’re running a small business or heading up a PLC finance team, good credit control is paramount to business success. A clear, effective credit control strategy lays out how to keep cash flow problems to a minimum, chase slow payers and minimise bad debt – ultimately allowing your business to grow.
Because we know that not all businesses pay promptly, in this article we share our thoughts on what credit controllers should be thinking about and how a payment policy can protect cashflow for businesses of any size.
What happens to businesses when payments are late?
A study by Barclays found that last year 58% of UK SMEs were waiting for late payments for customers, while at medium size enterprises (50 to 249 staff), that percentage rose to 94%.
When a client doesn’t pay on time, resources are often diverted in the first instance to recovering the payment, with time, money and output allocated to chasing unpaid invoices. This then puts productivity at risk.
For small businesses, more than a week each year is spent pursuing money owed – that translates to 56.4 million hours, worth £6.3bn to the economy according to research by Intuit(2).
What can you do internally?
- Create and maintain a cashflow forecast
Business cashflow is exactly that: a flow. Creating and maintaining a cashflow forecast gives you an estimate of revenue: a rough idea of what’s coming in, and if it’s enough to cover what’s going out.
Once it’s created, be sure to keep the cashflow forecast up to date.
- Make it easy for clients to pay
Sometimes clients do have trouble paying, but you can minimise potential problems by making it easy to get paid by cheque, BACS, credit and debit cards or even cash.
Lay out your payment options up front and do remind clients of their options if their invoice goes unpaid.
- Create a clear credit control process
A clear credit control process sets out the process of monitoring and managing the invoices that have been sent to customers but haven’t yet been paid – also known as accounts receivable.
It’s vital that every member of the team is clear how to play their part in the credit control process, which should include:
- Credit terms
- The importance of prompt payment
- A timetable of actions including reminders when the payment is due, when it’s overdue, and subsequently every 7 days it remains overdue
- When to pass the overdue invoice to a debt recovery solution tool (such as Muckle Collect)
- Making invoice recovery part of your policy can protect cashflow
Late payments are detrimental to the health of your business. Our advice is therefore always to try and take back control with a prompt payment policy. If invoice recovery is a part of your process, we find that debtor days are reduced. It’s then easier to manage client expectations from the outset and pass late payment concerns to your debt recovery solution team, saving your business time and money, and circumventing difficult conversations.
Third-party legal expertise can make recovering late payments fast, efficient, and most importantly compliant. The right legal team is able to quickly assess outstanding invoices, make recommendations and help you apply compensation, late fees and interest to the debt (where applicable). They’ll seek recovery of your outstanding debts without the heavy-handed approach that risks damaging important client relationships – a key concern for any business chasing payment.
What is Muckle Collect debt recovery?
Muckle Collect is a debt recovery solution from legal experts, designed to help businesses of all shapes and sizes recover unpaid invoices of any amount.
Combining innovative technology with careful relationship management, the Muckle Collect team assess your debts and create a strategy for recovery.
Each unpaid invoice is fully trackable through the Muckle Collect online portal as it’s dealt with by our team, but it’s not an automated service – you’ll hear from real people giving real advice at every stage of the debt recovery process.
It’s free to register with Muckle Collect and get started today. Just sign up to tell us about your business and start uploading the invoices you need to recover.
For more information about Muckle Collect, meet the team or get in touch using 0191 211 7920. Alternatively email collect@muckle-llp.com.