6 min read
Every finance team member already knows the value of having a credit control function, but there are credit control mistakes and there are credit control mistakes.
For those who have their credit control basics airtight, here are eight killer mistakes even the best finance teams still make.
One reason I see time and time again for invoices going unpaid is making the assumption that all of your customers are the same and need to be treated the same. This mindset will definitely come back to hurt you at some point, it's only a matter of time.
When you issue your invoices, naturally you adopt the belief that the ball is now in the customer's court, but failing to ask the simple question of "What information do you need to be able to make payment?" will bring you headaches when the due date rolls by and you're left unpaid.
A common case I've seen in my former role as a Finance Director is the stealth purchase order - a PO that goes under the radar, stuck in processing, while the invoice due date creeps up. Until that PO is approved, your customer won't be paying you a penny, and don't rely on them letting you know that. Ask the question and ask it early - never underestimate the timescales involved in both communicating with your customers, as well as their internal processes. It's almost always longer than you anticipate.
You've got an arsenal of weapons available to you to use on late-paying customers - late payment interest and penalties, putting them on stop, debt collectors, or even taking them to court.
If you are going to wave these weapons around, however, don't do it without intending to follow through. Customers get wise very quickly - threatening action without following through simply ensures that customer never worries about paying you late again.
In your business, you are the authority on bad payers. This responsibility doesn't just end at identifying who are bad payers, you need to disseminate this information to other areas of the business.
Without communication channels and procedures in place to inform the rest of the business, you can very easily fall into the trap of other teams continuing to work on, deliver, or keep selling to a problem customer without an inkling of knowledge about their payer status.
I’ve experienced this frustration firsthand in my past in finance, finding out from the sales team that the problematic customer we were chasing up for multiple overdue invoices had just been sold to again! If we’d already had those communications channels in place, they could have broached the unpaid invoices when writing up the conditions of the new sale and we could have avoided digging ourselves a deeper hole.
It's all too easy to become so accustomed to late payment that problem invoices start to just get seen as invoices, and the can keeps getting kicked down the road. This is a bad way of covering up a critical cashflow problem.
Having a process for flagging problem invoices, as well as a framework to assess them, learn from them, and make changes for the better, is absolutely essential. Build this into your weekly credit control meeting and reap the rewards.
This is a mistake that many finance teams make surprisingly often. It goes like this: you make a sale, you deliver the goods, you send the invoice. Time passes by and payment doesn't arrive, again. Not a problem, you say, I'll just email... who is it?... John here and ask him what's the hold up.
Only John has no idea. And days are wasted emailing back and forth trying to figure out who on earth you really need to get in contact with to get the invoice paid.
It's not uncommon for your customer's purchaser to not be the responsible entity for invoice payment, but too many businesses fail to ask the simple question "Who do I speak to to settle payment on this invoice?" The few seconds it takes asking that can easily save you days down the line.
Email will be enough. That's what most credit controllers try to persuade themselves to believe but it simply isn't true. Whether it's fear of damaging the relationship, concern of the time investment, or simply trying to defer the problem, too many businesses are afraid of picking up the phone and asking a customer directly about their late payment. See our guide on the 6 most effective call scripts to get invoices paid here.
This will only hold you back. Email is a great tool for chasing up unpaid invoices, and around 80% of invoices can be successfully collected by email chasing alone, however for the remainder it is simply not enough. Following up with a phone call is a powerful and effective move that many businesses underestimate.
My rule of thumb? For every three email chasers you send, drop them a phone call.
So you now know two of the magic questions - "What information do you need to be able to make payment?" and "Who do I speak to to settle payment on this invoice?" You won't fall for those traps again. But what about their invoice paying dates? Knowing when a customer carries out its invoice payment can be a huge advantage, and again it only takes a few seconds to ask the question.
A company I previously worked at, for instance, only did its payment runs once a month, at the end of the month. Because of the directors' schedules, it was more convenient to batch invoice payment to this time.
Being armed with this kind of knowledge lets you know exactly when to get an invoice in your customer’s hands to ensure you get paid as soon as possible.
With most of your customers, your invoices will be paid near enough on time. But for those tricky few, problematic invoices can arise. And I don't mean your standard late payment cases, I mean really problematic invoices - the kind you need to resolve fast.
But where's the info you need? Hours can easily be lost rooting through your sent emails or racking your brains to recall a phone call you had three weeks ago, and you'll almost always end up with an incomplete picture of the situation.
This is where a well-planned and well-maintained communications history with your customers pays off big time. It is absolutely invaluable to keep logs of all chasers sent and replies received - for emails, archive them appropriately, for phone calls, make notes - and keep it all consolidated. Here, the old saying definitely rings true - an ounce of prevention is worth a pound of cure.
When you sign up for Chaser, you get access to our CRM tool, which automatically logs all correspondence with customers, creating a comprehensive record of all your communications!
This makes it easy to see when it's time to follow up over the phone, saves you time trailing through emails, and lets you know which customers have invoices overdue - helping your team decide who to grant credit to.
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