6 Tips for Credit Management

We look at the different ways small businesses can manage their invoices and make sure they get paid on time...

6 Tips for Credit Management

You sell a product or provide a service to a customer, invoice them and hope to receive the funds in a set period of time, say 30, 60 or even 90 days. That’s just how business works nowadays.

In principle, though this piles up your sales ledger with unpaid invoices, you do not actually receive any income at the point of sale. With the slow economy having hit everyone’s pockets, the frustrating truth is that many customers would rather delay payment unless continually reminded.

It is important for business owners to be on the chase in a bid to recover their funds. Afterall, you kept to your side of the agreement so your customers should stick to theirs and complete payment for their invoices.

Chasing debts is a disciplined approach to seeing the cash continuing to flow into the bank. If you take your eyes off your sales ledger just for a couple of days, the sales receipts might start to slow down. Here are a few guidelines to help keep you on top of your credit control:

Raise invoices immediately

Once you offer a product, document the details of the sale agreement in an invoice and raise the bill at the right time. Late invoicing often gives the customer the feel of extending their credit period.

Demand some cash upfront

This must not be necessarily full invoice payment, but some form of deposit for payment. Work out what’s reasonable, say 10% of the invoice and demand down payment. If the customer is keen on buying from it, they’ll accept your request for a deposit.

Send reminders when the invoice is due

Contact the customer a few days before the invoice date and remind them to complete their payment. This can be particularly relevant if it’s a huge invoice as they might prefer to pay in instalments.

When chasing, be firm

If you’ve got your business at heart, then you need to do everything in your means to recover payment. Most businesses are reluctant about late payment because they’re scared of losing customers. Remind debtors that it’s your right to call legal action when customers delay payment or consider charging penalties for overdue invoice bills.

Assume everyone will delay payment

Customers can delay payment for genuine reasons such as invoicing problems, absence of directors who sign cheques and cashflow difficulties. However, several customers frame excuses to avoid payment – ‘the cheque is in the post’, ‘the machine is down’ and just to name a few.

It’s advisable to assume that every invoice will become overdue so that you can put in place contingency measures to bring the cash in earlier. This brings us to the last tip below.

Consider a factoring facility

Chasing debtors is a time-consuming and frustrating task as you have to sacrifice other business activities to handle slow and overdue customers. Factoring, a form of invoice finance, employs a professional factoring company to look after your sales ledger and handle your invoiced customers. In addition, factoring advances up to 95% of the invoice value as soon as it’s raised which enables you run your business stress-free.

Customers should come to you because you offer a good product, not because you allow for slow and overdue payment. If the latter applies, then you need to adopt a disciplined business strategy.

Mark Jefferson is an experienced commercial finance professional and director of Business Recovery with over 25 years’ experience in financial services.

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