The theory behind credit control isn’t rocket science: good business means being paid the right amount, as soon as possible.
Credit control is about knowing what you’ve got outstanding, what’s
coming in, and who’s been tardy or avoidant when it comes to invoices.
Why does this matter?
You can’t build a business without cash, just because someone owes you thousands, doesn’t mean you have it in your cash flow.
Cash is King
Charles Dickens, using the character Mr Micawber’s voice put it thus:
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds out and six, result misery.”
Your business needs a healthy cash flow held in order - to do this your business needs to utilise an effective credit control procedure.
However, as we all know theory and practice are sometimes at odds. So how do you do you ensure those owing your business money pay on time?
Blue Arrow's top tips for getting paid
1. Be proactive
In an ideal world you’d do the work and kick back, waiting to be paid. The reality is this won’t work. You need a proactive approach.
Instead, as part of running a business, you need to apportion some time to collecting debt. Make sure you keep records of who owes what, and proactively prompt them – Xero can make things easy here by sending professional reminder emails and quick and easy statements.
It is important to be proactive and stay on top of credit control because it can quickly build up in to an insurmountable task and things get lost or forgotten.
2. Use contacts carefully
Often you don’t think about selecting who to invoice. You simply whizz the invoice over to the contact you had for the work. This won’t always work – you’re adding a fallible link to the payment chain.
Instead, before commencing work ask who to send invoices for and obtain their direct contact details.
3. Be clear
Invoices shouldn’t be overloaded with detail. However, they should clearly state your terms and conditions. We recommend shortening your payment terms to 14 days where you can. On average, people pay 14 days late, so at least with 14 days payment terms you can expect to get paid within 30 days.
The reason for this is that those who pay on time will do – whether your payment terms are 14 or 30 days. Those who are late will sit on the invoice even longer, without you being in a position to act.
4. Think ahead
Don’t simply see the price you’re quoting, think ahead to how you actually ensure that payment.
This may mean, for particularly large or new customers, you undertake credit checks. Similarly, for large projects set staged payments, including some in advance.
5. Know how to chase professionally
When you run your own business it can feel a little personal when someone doesn’t pay.
However, you’ll need to manage this professionally. Again, using Xero can make things so much simpler. #Automated chasing means professional chasing without the hassle.
Of course, occasionally you’ll need to go further and chase debtors more directly, either over the telephone or face-to-face. It’s much harder to ignore a real person than an email.
If you’re still struggling, then don’t be afraid to use debt collection agencies where necessary. It keeps things professional and allows you to recoup as much of the debt as possible.
Credit control is vital to the health of your business.
It also needn’t be complicated. It should be routine and simply part of the daily administrative side of what you do. Use automation and a meticulous approach by choosing Xero and Blue Arrow Accounting to achieve results.
- Robyn Richards