Credit Control

Posted on: 12/07/2022

Category: For your business

Credit control can often be a time-consuming exercise that detracts you from the day to day running of the business but as this article will explain it is an essential part to cash flow and growth.

As a starting point you may wish to consider how you want to be perceived in the marketplace. Do you want to be known for tight credit control procedures or a company that is prepared to loosen the reigns a little? Businesses operate in a way that suits their own commercial and business needs, but is this enough?

Credit control should start with a set of terms and conditions of business and if they have been incorporated into the Contract. It is important to know what your legal rights and obligations are and how you can enforce them. The benefit of terms and conditions of business is that you can have a variety of enforcement and/or recovery methods which allows you to put pressure on the debtor to pay.

In conjunction with the above there should be a clear credit procedure in place that is adopted whatever the circumstances. If an invoice is overdue make sure your credit control department diarises the matter and sends a letter demanding payment (7 days if it is to another business or 14 days if it is to a consumer). If no response and/or payment is received then a very aggressive approach would be to issue Court proceedings straightaway. However, the approach taken will largely depend on the business relationship going forward and therefore you may wish to call the debtor, send a further letter or enter into negotiations. Make sure that all of your communication is in writing so you have a clear record of all of the conversations made. If you have a discussion over the telephone follow it up with a letter or email so there can be no mistake as to what discussed/agreed. Similarly if an agreement is reached to settle the debt make sure it is evidenced in writing. The more documentary evidence you have, the better it will be to argue your case should the matter proceed to a more formal setting.

If effective procedures are in place this should reduce your bad debts and enable you, your accountant and your bank to have a clearer picture as to the business’ ability to reinvest and/or grow.