Credit control- Getting paid on time
Firstly, credit control and getting paid on time is crucial for all businesses. You need money to pay bills, staff wages, repay loans, investment, and also to pay yourself. Most importantly, if your business doesn’t get paid on time, you are heading for financial problems. So get your credit control right!
A profitable business does not mean that your business will survive, grow and prosper. Profit happens when you sell something for more than it costs us to provide it. That makes you profitable, but until the customer pays you don’t have that cash to pay for things. Profitable businesses can still run into trouble if the cash dries up.
Tips to help your credit control
We’ve summed it up by: CAT
Culture
- Implement a robust, practical and effective credit control policy. Include credit facilities, payment terms, and how you deal with late payments.
- Be clear when communicating your terms and conditions. Make it part and parcel of an agreed way of working together.
- Keep your business cash flowing. Manage the credit you give customers.
- Know who owes you money, when it’s due and overdue. Monitor cash flow, and ideally prepare a forecast cash statement on a rolling twelve-month basis. Your cash flow forecast should show you:
When cash comes in and goes out
Surpluses or shortfalls
Action
Ensure you put policies, terms and systems in place. However, don’t forget if you don’t enforce them or there’s really not much point.
It’s a tough balance keeping good customer relationships and getting paid on time. Firmness, tact and diplomacy are crucial here.
Note late payments, and don’t let things slide.
• Send reminders promptly. Follow up with a phone call if needed.
• Set dates in your calendar of when to send reminders out
• Add notes to a customer account e.g. if they’ve requested a payment plan and the amount, they have agreed to pay
• If there’s a payment plan, put it in writing and send it to the client
Don’t wait too long to collect your money. Or you could find yourself using your own funds to sustain your business. In the long term this is neither advisable nor practical.
Consider ceasing work for the client until the account is cleared. If all else fails then formal recovery action is an option.
Tools
Credit control improves if you have a robust cloud accounting system in place. Although credit control is the life-line of businesses it doesn’t always receive the attention it should. Numerous businesses find many obstacles when dealing with it. Some businesses leave too much of a gap between invoicing when work is completed, not chasing settlement etc.
Cloud accounting software can help you keep track, whether you offer credit terms, payment plans, etc
There are a number of cloud accounting software packages on the market but we have found that none of them quite match the potential and capabilities of Xero.
We use Xero , and also are accredited advisors so can tell you the many great features of this software.
Benefits of using Xero
Check how much money is owed and when payments are due
See what invoices you have outstanding (Reports section)
How long settlement usually takes
Setting reminders to be sent out at the intervals that you require
Add notes to a customer account e.g. such as payment plans and the amount they have agreed to pay
Xero is a vital tool that significantly reduces admin time. It helps keep records up to date and in one place.
Be more CAT- and get paid on time!
Get in touch with us to find out more and how we can help improve your credit control. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.