Credit control is an important aspect of all businesses and having effective credit control processes in place will help to ensure that your business is avoiding cash flow problems and that your customers are paying you within your credit terms. In this article, we will be delving into the importance of credit control and how you can improve the credit control processes within your business.
What Is Credit Control?
Credit control is the process of managing and overseeing a company’s accounts receivable, to ensure that customers and borrowers are able to pay on time. Credit control is extremely important and plays a huge role in contributing to the financial success and well being of a business. It helps businesses avoid any financial losses, by evaluating customer’s credit worthiness and having effective credit control processes in place, it minimises the risk of having unpaid invoices or debts.
Credit control involves activities such as credit checks, payment reminders and debt collection, and by having procedures in place within your business, these processes can be done effectively and efficiently, and they will enable your business to avoid any potential cash flow issues.
Why Is Credit Control Important?
Credit control is critical for the success of any business as it will improve a businesses cash flow. Credit control is one of the main ways that businesses can ensure they have enough cash to run their business successfully. Without cash flow, businesses are not able to invest in growth opportunities, pay bills, or pay staff wages and this can severely impact businesses.
Credit control involves managing and monitoring the money owed to a business and by doing this effectively, businesses can avoid any financial problems. By staying on top of accounts and mitigating financial risks, businesses can have stability and can enable substantial growth.
5 Tips For Improving Credit Control Processes
Implementing an effective credit control process is critical for a businesses success and below are five tips that can help you to improve your credit control processes.
1. Have Clear Credit Control Procedures In Place Within Your Company
Having effective credit control procedures in place will ensure that you are getting paid on time by your customers and will help to ensure that you are not facing any cash flow problems. It is important that within your business, you have formal processes in place so that everyone within your company knows exactly how your credit control policies work. Write down your procedures and explain how your business issues invoices, what happens if customers do not pay on time and exactly how staff members should implement the policies.
By having clear policies in place, it will help to ensure all relevant parties are aware of how the processes should be implemented, therefore helping to reduce any problems before they even arise. By managing credit control effectively, businesses can navigate any uncertainties with confidence and can therefore build a solid foundation for success.
2. Research Your Customers
Before offering credit, it is extremely important to find out all of the necessary business information so that you are able to perform a credit check on your customers. A credit check will give you information about your customers’ financial behaviour, this can include whether your customers have paid credit back on time previously, or how they manage their credit currently.
As a business, it is crucial to research your customers to see if they are able to pay you back on time and while a credit check is not a 100% guarantee that the customer will/ is able to pay you back, it will enable you to make an informed decision about the customers terms and conditions. For example, if your customer has a low credit score, you may wish to ask your customer for partial payment upfront so that you can be sure your business will not be exposed to any financial risk or loss in the event of no payment. An upfront payment provides your business with an element of security and allows you to maintain a stable cash flow whilst still offering your products or services to customers who have limited credit worthiness.
3. Build Good Relationships With Your Customers
Building good relationships with your customers is essential when it comes to credit control. A positive customer relationship that is built on trust and effective communication will likely add a sense of loyalty and responsibility towards payment commitments from your customers. If your customers feel valued, they may be more likely to prioritise timely payments. Additionally, having good communication will allow businesses to address any payment concerns easily and proactively, finding mutually beneficial solutions.
By building good relationships with your customers, you can ensure effective credit control processes. Plus, by maintaining that relationship, customers may want to do business again with you in the future and this can be greatly beneficial to your business and can provide you with increased cash flow and growth opportunities.
4. Make Sure You Invoice Promptly And Accurately
Invoicing your clients and customers promptly and accurately is essential for effective credit control processes. Timely and accurate invoicing will set clear expectations for your customers regarding payment dates and processes. Sending accurate invoices will reduce the likelihood of any misunderstandings or disputes from your customers and this will also reduce the likelihood of delayed payments.
By sending invoices promptly, to the right person and with no mistakes, you can expect payments faster and without any unnecessary delays. Efficient invoicing will also enable you to monitor any late payments and take proactive measures to address any payment issues promptly.
Prompt and accurate invoices are an integral part of having effective credit control processes. It will improve cash flow and reduce late payments, but it will also build a strong company image and help to build customer relationships, therefore increasing the overall financial position of your business.
5. Forecast Your Cash Flow
Forecasting your cash flow can be a very important and useful part of your credit control processes because it will provide you with crucial insights into the future financial performance of your business. By predicting the inflow and outflow of cash, businesses are able to anticipate any potential cash flow gaps and plan accordingly. This will ensure that businesses have sufficient funds to meet their financial obligations and can also help to make informed decisions about the growth of the business.
Effective credit control processes require businesses to manage credit that is extended to customers while ensuring the business has enough cash to cover all expenses and growth opportunities. Cash flow forecasting will enable businesses to plan, manage and adapt their credit control in order to maintain financial stability.
Credit control requires organisation and planning, but by having specific processes in place within your business, you are more likely to have an effective process that can be implemented smoothly and will put your business in a better financial position.
At New Millennia, we offer credit control services for small businesses, specialising in the recruitment industry. With over 19 years of experience, you can outsource your credit control with us and focus on the important things and offer the best service to your customers without compromising your financial stability.