Are you looking for effective but simple-to-implement credit control strategies to help you boost cash flow? If so, you've come to the right place.
As a market leader in credit control software, Chaser knows that cash flow is the lifeblood of small to medium-sized businesses, and when it's tight, so are your finances.
Having helped thousands of businesses recover $4,780,377,199.95 in 2023 alone, Chaser knows what it takes to keep your cash flow on track and has translated that expertise into eight credit control strategies that can help you better manage your company's finances.
Why is credit control so important?
Effective credit control is the foundation of healthy cash flow in any business. It ensures that payment terms are followed, and overdue invoices are collected on time, freeing up funds for other essential expenses.
The importance of credit control can't be overstated, especially for small to medium-sized businesses that often struggle with the challenge of tight budgets and limited resources.
Chaser's 2022 late payments report shows the true scale of the current late payment crisis - with an estimated £50 billion of outstanding invoices in the UK alone.
The rate of late payments has also risen over the last few years. In 2019, research from Xero and Paypal found that 48% of invoices issued by small businesses are paid late.
By 2022, that rate has risen to 87% of businesses reporting that their invoices get paid after the due date.
In the face of this late payment crisis, it's more important than ever to have a robust credit control strategy in place. Ensuring that you're collecting all of your outstanding invoices on time and in full can make a big difference to your business's cash flow.
The reality is that 50,000 businesses close down each year, and 90% of those insolvencies are caused by cash flow problems.
Ensuring that your credit control processes are robust and effective can help keep your business running smoothly and, ultimately, help you to stay afloat.
8 strategies for better credit control
The credit-control strategies listed below will help you to ensure that your invoices are paid on time and in full, mitigating the risk of insolvency and helping to keep your business cash flow healthy.
1. Invoice quickly and reduce your shorter payment terms
Invoicing as soon as you have completed the work or delivered the goods is one of the most important strategies for effective credit control. Rapid, accurate invoicing ensures that customers receive clear information about what they need to pay and how.
If invoices are sent late or contain errors, they pile more delays and confusion on an already unnecessarily extended process.
When setting payment terms, consider reducing the length of time in which you expect payment. Moving from 30-day payment terms to 14 or 7 days can be helpful in some cases. While the standard terms in the UK are 30 days, there is no legal requirement for this.
Since 87% of businesses report that their invoices are paid at least a week late, reducing the payment terms can help ensure that customers pay on time.
If you already have payment terms in place, it's critical to update your customers when conditions change. Notifying them in writing that payment terms have changed ensures that they understand what's expected of them.
2. Regularly review and optimise your credit control policy
As mentioned, effective credit control is the cornerstone of successful cash flow management, and it's essential to regularly review and optimise your credit control policy.
If you don't already have one, creating a credit control policy outlining your expectations for payment times and procedures is important.
You can use Chaser's Credit Control policy template to help you set up a robust and effective policy to ensure timely payments from your customers.
There is a wide range of benefits to developing a credit control policy – not least of which is that it provides clear guidelines for how your staff should manage credit control matters.
Your credit control policy should also include mechanisms for reviewing customers’ credit ratings and risk management measures, such as late payment charges, alternative payment options, and credit insurance.
Once you have a credit control policy in place, it needs to be reviewed and updated regularly. This ensures that it is aligned with any changes in the business landscape.
A static, unchanging policy will eventually become outdated and ineffective, so it's important to keep on top of any changes in the market and adjust your policy accordingly.
3. Use credit checks to mitigate risk
Most companies make use of credit checks when setting up new customer accounts. These checks can help you to identify customers with a history of late payments and mitigate the risk of doing business with them.
However, restricting them to the initial customer onboarding process is not enough. It's important to review your customers’ credit ratings on a regular basis, as their financial situation can change over time.
Credit checking is an important tool for managing risk, as it allows you to make informed decisions about who you do business with. It also warns you if a customer’s creditworthiness has deteriorated so that you are aware of the associated risks.
Using a comprehensive credit checking system can help you identify any late payments from customers as soon as they occur so that you can take immediate action and avoid further losses or delays.
4. Improve interdepartmental communication
While your accounts receivable and finance departments are responsible for managing credit control, it's important to ensure that all departments of your business understand the importance of timely payments.
Regular interdepartmental communication can help ensure that everyone in your organisation knows the need for credit control and understands how their actions could affect cash flow.
For example, sales staff should know payment terms and deadlines. They should also work hand in hand with finance staff to manage customer accounts and ensure that credit agreements are adhered to.
Customer service teams must understand the importance of quickly responding to customer queries and complaints about invoicing.
Product teams must be mindful of timescales for order fulfillment, and marketing staff must ensure that customers are updated on any changes affecting their payments.
Facilitating this kind of communication across departments will ensure that everyone is working together to maintain a healthy cash flow.
5. Use payment portals to expedite payments
The best way to get paid is to make it as easy as possible for customers to pay their invoices. Providing a range of payment options and investing in technology to automate the process can ensure that payments are made quickly and without hassle.
Online payment portals like Chaser Pay, Sage Pay or Stripe allow customers to pay their invoices directly from your website or app. These portals offer a secure and convenient way for customers to pay quickly, helping to reduce the time it takes for payments to be made.
Online payment portals are also useful for offering a multitude of payment options, such as credit cards, direct debits, PayPal and Apple Pay. Giving customers more ways to pay makes it easier for them to settle their invoices quickly.
By making the payment process fast and convenient for customers, you can reduce delays and ensure that payments are made on time.
6. Give your clients a pre-payment warning and follow up on payment proactively
Being proactive is a critical component of successful credit control. Regularly follow up on outstanding payments and ensure your customers know when payment is due.
Send out reminders a few days before the date of payment, if possible. This will make it easier for customers to plan ahead and give them enough time to pay their invoices before they fall overdue.
It's also important to promptly follow up on late payments – don’t be afraid to contact customers and ensure they know the consequences of not paying their invoices.
It's important to remain diplomatic and professional when following up on late payments. Be assertive in requesting payment but maintain a positive relationship with your customers. It's possible that legitimate reasons can sometimes cause late payments, so be understanding and willing to work with them.
While being so proactive might seem like a significant increase in the workload, there are ways to automate many of the processes involved. Automated emails or SMS messages can be sent out at specific intervals to ensure that customers and staff are all on the same page about payment expectations.
Chaser's research shows that businesses that follow up with 90% or more of their invoices are the most likely to get paid within a week of their invoice due date.
Chaser's credit control software enables businesses to automate their follow-up process and dramatically reduce the time it takes to get paid. Automation means that you can spend less time chasing payments and more time growing your business.
By taking a proactive approach to credit control and utilising automation tools, you can ensure that payments are made on time and help maintain a healthy cash flow.
7. Make use of a combination of SMS and email reminders
A combination of text and email reminders increases a business’s chance of getting paid within a week of the invoice due date by 56%.
Despite the clear efficacy of text messages, many companies have yet to embrace the technology fully. Less than 10% of businesses use text messaging to remind customers of their payment obligations.
Text messages are much more effective than email due to the fact that users check their phones multiple times a day and are more likely to read and respond quickly to short, direct messages.
The open rate for SMS is a staggering 98%, compared to just 20% for the average email message. SMS messages can also contain links to online payment portals, making it easy for customers to pay their invoices.
SMS messages are also the best way to reach customers who are out of the office on the move, meaning that payments can still be collected in a timely manner.
On the other hand, email is the best way to communicate with customers who are in the office and can access their laptops or computers. They can also contain more information than text messages, making them useful for more complex conversations.
By combining the power of SMS and email to remind customers of their payment obligations, businesses can increase their chances of getting paid on time.
8. Don't be afraid to call in the professionals
Debt collection doesn't have to be a dirty word. The reality is that 25% of businesses in the UK alone write off an average of £11,829 in bad debt each year.
Most businesses lose this money outright because they don't have the resources or knowledge to chase payments effectively.
In order to prevent losses due to unpaid invoices, businesses should consider outsourcing their debt collection process to a specialised third-party service provider.
Professional debt collectors can use their expertise and experience to recoup money owed in a timely manner that also respects the customer’s dignity and rights.
Choosing to bring in debt collections doesn't mean that the customer relationship is over. It simply means that the business has reached an impasse and needs a specialist to resolve it.
Effective debt collection services, like those offered by Chaser's experienced debt collection team, work to find a mutually beneficial resolution to the problem, preserving your customer relationships while collecting the money you are owed.
By investing in expert debt collection services, businesses can protect their cash flow and ensure that bad debt doesn't become a burden on their financial performance.
8 ways to enhance your credit control and boost cash flow
Good credit control is essential for the success of any business. Without proper credit control practices, businesses can find themselves in a difficult situation with unmanageable debt levels and poor cash flow.
Fortunately, there are steps that businesses can take to ensure they maintain good credit control and protect their finances from bad debts.
The eight strategies outlined above can help businesses ensure that payments are made on time and that cash flow remains healthy.
Check out Chaser's comprehensive blog for more insights and tips on improving credit control and boosting cash flow. For more information on
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