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40 politely-worded templates to get invoices paid

Credit control and debt collection policy template for businesses (free template included)

Credit control and debt collection policy template for businesses (free template included)

Late payment of invoices is one of the major issues businesses in the UK have to overcome. Despite the creation of initiatives like the Prompt Payment Code and Duty To Report, the number of debtor days UK businesses have to wait before payment has more than doubled since 2018.

Within the UK, around 39 per cent of invoices are paid late, leaving small and medium businesses waiting on around £34 billion in late payments.

Invoices sent overseas suffer from similarly long delays in payment. The U.S. remains the largest trading partner for businesses in the UK. However, the number of debtor days added to the average invoice sent to the U.S. has skyrocketed to fifty-one, from just thirteen in 2018.

The rising issue of late payments has had a real impact on UK small and medium enterprises (SMEs) ability to do business.

Research by YouGov and ACI Worldwide has shown that 33 per cent of businesses were unable to meet their own financial obligations because of late payments. A further 17 per cent were unable to pay their staff on time, while 10 per cent say late payments actively hindered growth.

Even more worryingly, according to insolvency and restructuring trade body R3, late payments were responsible for around 23 per cent of all corporate insolvencies in the UK during 2019. So what can you do to protect your business from the cash flow issues caused by late payments?

Developing a formal credit control policy should be your first step!

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Why do I need a credit control policy in place?

Your company’s credit control policy is a set of regulations that govern how you trade on credit terms.

An effective credit control policy lets your customers and suppliers know your specific payment terms and acts as a guideline for your staff.

Having a credit control policy in place means the way you action your accounts receivables becomes far more cohesive and can more easily be coordinated across your business.

How do I create an effective credit control policy?

Credit control policies tend to be the results of past experience and evolving best practices and can be drastically different from business to business. However, you’ve got to start somewhere.

So, if you want to tighten up your credit control efforts and put a cohesive policy in place, we’ve created a generalised five-step process you can follow that will give you the outline of your policy.

You can then flesh that policy out in line with your own experiences and the specifics of your company.

It’s worth noting that your credit control policy doesn’t have to be set in stone. As with all best practices, it should continue to evolve to reflect changes in your business.

Five steps to a successful credit control policy

Building a credit control policy doesn’t have to be overwhelming, but going through the following steps, you’ll be able to create a basic policy that you can flesh out over time.

Step One  - Your internal processes

The first step in creating your own credit control policy is to define the internal structure of your accounts receivables and how it is managed. You’ll most likely already have some idea of how your payments system works.

To make your internal structure as cohesive as possible, you’ll want to assign a role/staff member to each function and create a clear system diagram that highlights everyone’s roles and responsibilities. Your internal process should also include a set workflow or lifecycle stage for overdue invoices to ensure that all invoices are being dealt with, and to minimise the chance of having to write invoices off. 

Step Two  - Credit checking

Prior to trading on credit, most companies will want to conduct credit checks on their proposed customer. To make this clear to your customers, you’ll want to highlight why you conduct credit checks and what credit checking services you use.

You’ll want to build regular credit checking into your credit control processes so that sudden drops in a customer’s credit rating don’t go unnoticed. When signing up new clients, conducting credit checks will give you a clear indication of whether you should consider having shorter payment terms or even take payment upfront.

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Step Three  - Your payment terms and conditions

This section of your credit control policy is probably the most important. You need to outline how and when you expect your customers to act on the invoices you sent them.

You’ll want to include your specific payment terms, what, if any, credit facilities you offer, what your late-payment penalties are and at what point you’ll escalate unpaid debt to debt collections.

Debt collections and debt recovery don’t have to be dirty words. Around 20 percent of invoices sent out by UK SMEs become bad debt. Instead of just writing that bad debt off, you should retain the option to escalate it to professional debt collectors such as Chaser Collections.

Chaser Collections uses a mediation approach to debt collection. We don’t harass your customers. Instead, we work with both you and them to make sure you get paid without harming your customer relationships.

Step Four  - Risk management

Management of risk is an important part of any credit control policy. This section should lay out your system for setting credit limits for your customers.

The best way to do this is to ask your customers to sign a credit agreement that makes it clear that you’re setting transparent credit limits that are based on their specific credit status.

When, and if a client reaches their set credit limit we recommend that their account is put on hold until the client has paid off all their outstanding debt to you. This is to ensure that the client’s debt does not continue to grow, and it also acts as a tool to get the outstanding invoices paid faster.

In Chaser, you are able to set credit limits for each of your clients and you will be notified when these are reached. As a result, you have full control and transparency over which clients you should keep an extra eye on, and put on hold if necessary. 

Step Five - Payment methods

The last step in your credit control policy is to set out your preferred payment methods and provide all the details necessary for your customers to pay you.

It’s normally a good idea to give your customers as many payment options as you can manage, as this increases your chances of getting paid promptly. Chaser’s Payment Portals, for instance, support payment via Stripe and PayPal as well as credit and debit cards.

By following our five-step plan, you’ll be able to quickly and effectively create a simple credit control policy that you can edit and improve on overtime.

If you’re struggling with credit control and the unpaid invoices are piling up, contact us to see how our Outsourced Credit Control Services can put your back on track for a fraction of the price of hiring new staff.

Your credit control policy template

The information in a Credit Policy should be clearly understood by all customer-facing staff, not least sales, who need to understand the boundaries within which they must work to generate sales, revenue and margin for the company.

Download in Word


Download in Google Docs

Make it easier to manage with Chaser 

Chaser’s mission is to create a world where all people and businesses have the confidence they will get paid for their work. Businesses don’t have to worry about getting paid. 

Contact us to learn about the software or services that can help you overcome your payment challenges.

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