How to chase your business' debts and get the cash in

Credit control starts long before an invoice is due or overdue. Gordon Lindsay, Enterprise Nation member and founder of Aston Business Services, shares some tips on how to improve your procedures and keep on top of your credit control.

A recent article called the issue of small firms being owed billions in late payments an outrage.

High profile examples like Carillion illustrate how important it is to be on top of your credit control with many businesses being left seriously out of pocket or worse.

While it is not always easy to identify a customer who is going to turn out to be a slow or non-payer, there are often things a business can do to improve its policies and procedures to help reduce the impact of these potential bad debts.

In many cases, you will find that someone who is a slow payer with you is a slow payer with other people too.

Some will use every trick in the book to delay payment or find a reason not to pay at all; eg. the invoice is wrong, you never sent a statement, that wasn't the agreed payment terms, etc, etc. That is what they do.

In the worst cases, when you finally draw a line in the sand and ask for payment before you sell them any further goods or services they will disappear and move onto their next victim leaving you with a bad debt to be written off.

What you have to do is ensure that you have good invoicing and credit control procedures in place to eliminate the reasons some people have to delay and/or avoid payment.

Credit control starts long before an invoice is due or overdue.

It starts when you first speak to the customer.

Factors which can help customers pay in good time include the following;

• make payment terms clear from the start when the customer signs up to avoid any misunderstanding later

• make payment terms clear on each invoice

• issue an invoice as soon as possible after the purchase is made or the task is completed. Some businesses don't raise their invoices until the end of the week or even the end of the month. In most cases, the sooner the customer has the invoice the quicker the money is in your bank account

• check all the details are correct on the invoice before it's sent out. Delays caused by reissuing an invoice can lead to delays in the customer paying

• credit period shown clearly on each invoice

• credit period shown clearly on each statement. Make sure it is the same period as agreed with the customer at the outset

• send statements promptly. Some customers don't pay until they receive a statement, despite what you have agreed previously or it says on your invoices

• send the statement earlier. Some businesses pay their invoices once or twice each month, if you send your statement a few days earlier than you are currently doing you could make an earlier payment run

• have bank details clearly shown on each invoice. More and more customers are paying using online banking rather than sending a cheque. Ensure your bank account details are clear and correct

• have bank details clearly shown on each statement

• incentives for prompt payment. Some businesses issue invoices which have two prices shown; the full price and a lower price with the message, pay by x and pay £

Good practice

1. Regular aged debtor reports and credit control meetings are important. As are good communications with customers and a clear policy for dealing with slow payers and non-payers.

2. Have procedures in place to conduct a quick, basic credit check for any new customer to identify any potential problems. It won't spot every bad apple but could throw up important information on a prospective customer, especially if they are wanting a large order or project fulfilled.

3. Have clear procedures when raising an invoice to ensure the invoice is accurate and complete, and checked, before it is sent out.

4. Make sure all bookkeeping is up to date, all remittances are entered and all bank accounts reconciled to ensure everything is recorded before the statements are sent out. Customers don't like it when they receive a statement asking them to pay an amount they have already paid and it's your records which are not accurate. It doesn't show your business in a good light. To prevent mistakes, review the sales ledger to check that all remittances have been allocated to the correct customer before the statements are sent out.

5. Have fixed dates when statements are sent out. Use email where possible to save on the cost of printing and postage.

6. Send the latest statement each time you send out a new invoice so the customer knows the current situation, highlight any overdue invoices that need paid soon.

7. Hold regular credit control meetings to discuss the current situation regarding outstanding debtors to identify the problem customers and decide what to do about them.

8. Agree policy for dealing with slow payers, eg. credit limit or pay 50% of balance now and set up standing order to pay the balance within an agreed time period.

9. Agree policy for dealing with non-payers, eg. debt collection or other legal action.

10. Be consistent. If a customer agrees to pay an outstanding debt, confirm a specific date with them when it will be paid, not sometime next month or in a couple of weeks. If you don't receive a payment by then, get on the phone straight away. If a slow payer knows you will always be on the phone to them if they are late, they will often pay.

It's important for you and your business to chase those debts and get the cash in.

Don't be fobbed of with excuses. If customers are happy to buy your goods and/or services, they should be happy to pay in good time.

The sooner you can identify and deal with slow or non-payers the better your business will be.

Credit control can be a thankless task sometimes, but it is a vital job.

Either do it yourself or get someone to do it.

Just make sure you do it.

Don't neglect it.