Successful credit management

It is always better to be proactive when ensuring that your invoices can be paid. In an ideal world people will pay on time without being asked. However companies are currently struggling to pay their bills and if they can buy more time they will. Below is a list of dos and don’ts to help ensure your invoices are paid as close to their due date as possible and support you in implementing a good credit management process within the business.

Your checklist

• Do carry out research on your prospective client – the
due diligence to assist you in obtaining payment needs to be carried out at the beginning of the business relationship before any order has been accepted. When you are approached by a company or sales have found a potential client ask them to complete an application form and carry out a credit check.

• Don’t rely entirely on trade references as potential clients will only give you the details of those that they pay on time. If they are unable to supply references at all then they either haven’t got any creditors that they pay on time or they are a new company with no credit history.

• Do ask potential customers to pay in advance to build up a credit history if they have a poor or no credit rating. Allowing credit is a privilege and costs you money. For every £1 you allow on credit you lose approximately £5 as you have to pay for raw materials, staff and premises before you receive payment.

• Don’t assume that you will lose the sale if you don’t allow credit. If they are serious about building a mutual beneficial relationship with you they will want to build the trust between you.

• Do ensure that you manage the credit effectively. If the credit rating shows that they should only have £1,000 at a time be mindful that this is the total credit they should have. However if they have six creditors all providing £1,000 this means that they will, potentially, be £5,000 over the amount they are worth.

• Don’t be tempted to increase their credit limit if they are struggling. A common comment is ‘if you increase my credit and sell me more goods I can then make enough to pay you’. If they can’t afford £1,000 they can’t afford the extra. If they have already sold the goods they purchased from you, what have they done with this money?

• Do ensure that you check what their internal process is for processing invoices and making payments. Know what information the invoices need in order to receive payment. For example, do they need a purchase order number?

• Don’t accept an order without the correct authorisation and purchase order if this is their requirement in order to pay you. Once you have supplied the goods or services they have no incentive to provide you with the necessary documentation to enable you to be paid.

• Do ensure that you call them once they have received the order and after you have sent the invoice to check that they are happy with the goods/services and that the invoice is correct. This call that confirms that they are happy with the goods or services supplied and that there are no issues with the invoice. This increases the chance of you being paid on your terms.

• Don’t be afraid to ask for your money. It is YOUR money and you are legally entitled to it. You won’t lose a good customer by asking for your payment and they should be reassured that you intend to be around for a long time as you are serious about collecting your cash.

• Do subcontract your credit control out if you are not comfortable asking for money or invest in a credit controller.

This will save you more in the long run than it will cost and they are good at what they do. By utilising a credit controller you maintain your relationship with your client.

• Don’t assume that you will be paid without contacting your client. If they have a limited amount with which to pay creditors they will pay those who contact them before they make payment to those who seem to not be bothered about whether they are paid.

• Do utilise the Late Payment of Commercial Debts Act for repeat offenders as this will ensure that you receive some compensation and interest on the outstanding amount

• Don’t be afraid to use every tool that is available to you. If you have ensured that you have delivered on time and that you have provided all of the details to enable them to pay you then there is no valid reason for not making the payment.

Jennifer Lambden FACP, ICP, F. NALP is the Guild’s credit expert and has worked as a consultant, coach and mentor with businesses for over 20 years.