Credit control is a process and function within your business that will help you to grow. When done well, it will have a direct impact on improving your cash flow. For companies who bill clients with invoices; credit control is a must-have system to keep your business trading successfully. For businesses who trade with immediate payment terms, offering credit terms can increase your client base, make you more attractive to larger organisations and grow your business. Credit control may not seem like the best option for you today, or perhaps you have never even heard of it, but it is definitely something to think about, learn about and implement if you want to scale your business.
Let us look at why this is so important.
- On Average 23% of UK business closures are caused by late payments.
- In 2016, FSB concluded 50,000 UK business would have survived had they been paid on time by debtors.
- Over 1/3 of UK businesses report cash flow issues caused by late payments.
- Estimates show it can take more than 1 working week per year to chase outstanding debts.
- Small business cannot afford to trade without credit control procedures in place. Here are 3 quick tips to get you started:
Make penalties clear. I regularly encourage businesses to put a whole list of escalating penalties in their contracts, agreements, and invoices. Here are a few examples. No Refunds! Failure to pay on time will lead to your account being closed immediately. Failure to pay on time will leave you liable for additional costs. Late payment is billed at £xx per day for additional admin costs…. the list of penalties is endless. Obviously, this depends on your industry, your clients, and your type of business, so choose the ones that work best for you.
Reducing payment terms for debtors. Done steadily and with good communication this will improve cash flow, keep you present in the debtor’s mind, and mean easier credit control processes for you as you will have fewer steps to take in the future. The most common payment terms are 14 and 30 days, and the most common payment receipts lead times are 32 -45 days. Shorter payment terms, and faster payment receipts will improve credit control.
Offer payment terms to grow your business. If you are not currently offering credit supply to your customers, then including this procedure could increase your client base, your market share, your representation, and overall, your revenue. This is offering flexibility to customers, expanding your potential reach to those who may prefer this ability to pay you. Offering multiple methods of payments is also highly attractive and makes the recovery of debts that much easier.
If your business is struggling with late payers, bad debts, cashflow and lots of stress, contact KBS to get help on what changes you need to make to your processes to improve the situation. Having the right systems in place will turn a failing business into a successful, profitable one, and with KBS Credit Control Masterclass, even the most struggling business can see dramatic improvement in less than 6 months.
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