Why is Credit Control Important for your Business?
No matter how passionate you are about your business and the service or products you are providing, getting paid and ensuring regular and predictable cash flow is what makes it a business.
Statistics state more than 90 percent of small businesses will fail within ten years. The majority of these will close, not due to lack of passion but lack of cash flow and non-payment of invoices. It is thought that forty percent of active businesses at some point have to deal with late payments.
It is, however, possible to protect your business from this fate by ensuring there is an efficient credit control system in place, whether outsourced to a company like Confident Cashflow or whether you do it in house.
No matter how you manage your credit control there is little doubt that it is an essential aspect of your business administration.
But Why is Credit Control so Important?
- Gives you the power to do business with confidence – Part of a good credit control system can include doing credit checks on clients, providing the confidence that the people you work with will actually pay you for the products or the services you provide.
- Sets out clear payment terms – By setting out very clear payment terms such as how much should be paid upfront, when the balance should be paid, and how it can be paid makes it clear for yourself and the client what is expected. Ambiguity in these terms can be used by a bad/late payer to justify non-payment, so laying this out clearly can reduce the number of disputes you may have about your invoices.
- Sets out a clear procedure for the clients for payment – once the payment terms have been laid out it is important to make it clear what the procedure is for late payment. When is a payment considered late? What are the penalties you charge per late payment, and are these accumulative daily or a one-off payment? This procedure can be included in your terms and conditions, of which your client should agree before you start work with them.
- Consistent procedures – By ensuring that invoices are consistently sent out at the correct point in the procedure (on completion, on delivery, upfront) ensures that all other aspects of your procedure can be predicted. Not only is it more efficient for your business’ cash flow but a strict, consistent procedure makes your company look more professional.
- A stringent paper-trail of all communication – As part of an effective credit control procedure it is important to maintain clear records of every communication with late-playing clients. Then, should the debt end up in legal proceedings there will be a clear record of what was agreed to, and what had been said throughout all communications.
- Helps you keep track of payments due – Once you have a clear payment procedure in place, it makes it easier for you to keep track of what is due and when, which makes predicting cash flow much easier. This can then lead to more stable cash flow which will be better for your business in the long run.
- Enables your company to grow – Once you have stable and predictable cash flow you are able to invest more in your company and will be able to grow. Intermittent payments make investment difficult.
- Maintain relationships with your clients – No one wants to have to chase payments with clients, especially if you already have a good relationship and intend to work with them again but without clear payment terms and a credit control system in place conversations regarding money can be awkward.
Outsource or Inhouse
As with every other aspect of business administration you have to make the decision whether to maintain credit control procedures yourselves or outsource to a professional.
One of the main reasons businesses do outsource their credit control is due to lack of expertise within the organisation. If the procedure is not followed in a consistent manner, this will rub off on your clients, who will then think it is acceptable to have a relaxed approach to payment procedures. Having a dedicated member of staff ensures there is consistency, and follow-up on all late payments.
Read our blog, Five signs that you need to outsource your credit control.
If you would like to learn more about efficient and effective credit control why not book a call here to have a chat.