Tips and advice on controlling credit and cashflow

Here's a comprehensive guide on how to keep control of credit and cashflow while avoiding costly disputes with clients. 

 

1. Understand Your Customers and Set Clear Terms 

Before offering credit to a customer, establish robust account opening procedures and conduct credit checks. This helps you assess the financial standing of the customer and understand their ability to pay. Always ask for trade references, and if necessary, consider director or parent company guarantees. Also, verify that the individual signing the agreement has the authority to do so. Clear account terms and conditions will also help prevent customers from trying to impose their own terms. 

2. Ensure Sales and Credit Teams Know the Terms 

Sales teams must be well-versed in your company's terms and conditions and understand when to incorporate them into contracts. It's crucial that these terms form part of the agreement from the outset to prevent disputes later on. 

3. Keep Accurate Records 

Maintaining detailed records from initial inquiry to final payment is vital, especially when disputes arise. These records can serve as valuable evidence in court, ensuring a stronger case if you need to pursue payment through legal means. 

4. Invoice Promptly and Consistently 

Make sure invoices are sent promptly according to your agreed terms. A timely invoice helps reduce the likelihood of late payments and demonstrates your professionalism. 

5. Prioritise Debt Collection by Date, Not Size 

It’s important to chase overdue debts in order of when they were due rather than focusing solely on larger sums. Small debts can accumulate and lead to significant cashflow problems if neglected. 

6. Delegate Credit Control to Trained Professionals 

Credit control should be managed by experienced staff who can handle the process consistently. Involving everyone in the office can lead to confusion and inconsistencies in how payments are chased, which may undermine your efforts. 

7. Keep Detailed Notes of Conversations 

Whenever you speak with a debtor, make sure to take detailed notes. This will help you track progress and ensure that any promises made are followed up on. Following up with an email also ensures that any agreements are documented. 

8. Document Payment Plans 

If you agree to a payment plan with a customer, always document the terms in writing. This can be in the form of a signed agreement or an exchange of emails confirming the arrangement. Having these documents in place can help resolve any disputes and make enforcement easier if necessary. 

9. Use an Accelerator Clause for Missed Payments 

Consider including a clause in your contracts that accelerates the entire balance due if a debtor misses an instalment payment. This ensures that debtors stay on track with their payments and prevents them from taking advantage of missed deadlines. 

10. Charge Interest on Late Payments 

Many B2B contracts allow for an interest charge on late payments, typically 8% per annum over the base rate, along with statutory compensation and recovery fees. Charging interest provides an incentive for clients to pay on time and can help cover the cost of late payments. 

11. Identify the 'Won’t Pays' Versus the 'Can’t Pays' 

Focus your efforts on customers who are unwilling to pay rather than those who truly cannot. If a debt is uncollectable, it’s best to write it off and reclaim any applicable VAT. 

12. Honour Your Commitments 

Consistency is key in credit control. If you make promises to your customers or suppliers, be sure to keep them. Businesses that stick to their word often earn the trust of their creditors, which can help with timely payments. 

 

By implementing these strategies, businesses can improve their credit control processes, reduce bad debt and maintain healthy cashflow, ensuring financial security and growth. Contact Tom directly if you'd like to have a friendly chat about cashflow and credit control.