Top credit control tips to help keep the cash flowing
Staying on top of the bills and paperwork is probably one of the more challenging aspects of running a business – particularly if you’re a sole trader or SME.
Often, smaller enterprises don’t have the luxury of a whole department dedicated to accounts or the management of cash flow, yet it’s one of the areas that can make or break a business.
Good cash flow depends a lot upon the flow of cash coming in to your business, which essentially comes down to your credit control. For some businesses, waiting for extended periods of time to get paid for work they completed weeks ago can be crippling.
While some of this is out of your control, there are measures you can take to maintain consistent cash flow where possible and minimise late payment.
Here are some very basic credit control tips to get you started.
Accounting software
An easy-to-use database of clients and invoices is essential for any credit control system. It must enable you to identify raised invoices, those which need chasing up and any that are outstanding.
While it is possible to do this manually by creating files for each company with contact names and numbers for who the invoice should be addressed to, with spreadsheets and so on, there’s also a variety of accounting software that includes the option of credit control function. This will automatically email customers with reminders that invoices are due and send regular emails to chase overdue payments. It could be well worth the investment in terms of time saved and hopefully cash coming in.
Credit check potential clients
In a business where every penny counts, you’ll want to make sure the companies you are trading with are credit worthy and reliable. There are various facilities available that enable you to check the accounts and credit history of businesses before you start trading with them. This could be a very useful exercise if you’re looking to start a large new account.
Agree terms upfront
Once armed with this information, you will be able to decide whether or not to do business with someone. It could be that you want to add extra controls, such as a deposit or staged payments, based on what you discovered during your credit checks.
Set out terms and conditions at the beginning of every new relationship and get every customer to sign an agreement before you start work with them, outlining what you will do, how much it will cost and when you expect to be paid by.
Be strict from the outset with new customers and don’t be afraid to give shorter payment terms until you have built up a good working relationship. This will avoid any confusion later on, or anyone claiming they were unaware of the terms.
Print your terms at the end of each invoice – you’ll find it’s a lot harder for people to plead ignorance.
Raising invoices
Make sure you raise your invoices as soon as the work is done, check it is addressed to the right person at the right address and always phone up to check it has been received.
Have a set process for sending out friendly reminders a couple of days before an invoice is due.
Late payment procedure
Do you have a process in place for dealing with overdue invoices? As soon as an invoice is overdue, contact the client to inform them and to ask when they plan to settle it.
You might want to put them on a ‘stop list’ so that no further goods or services are provided until the outstanding bill is settled up.
Say thanks!
Be sure to thank your customer once they have paid. This is also a good time to explore future opportunities with the customer or promote an offer. You could also invite them to recommend you to their contacts if they were happy with your work.
For more business coaching tips and advice, contact your local ActionCOACH.
