SMEs are struggling with credit control - here's how you can get it under control with itsettled's credit management and debt recovery software.
This makes for pretty sobering reading, and it’s no wonder that the UK’s small and medium sized businesses are facing a fight for survival. Throw Covid-19 into the mix, and you can see how it’s absolutely critical for the financial health of your business to have a robust credit control policy and procedure in place.
We’ve created these easy-to-follow tips which will allow you to collect your outstanding debts quickly and with confidence.
If a stranger turns up at your home and asks to borrow some money you’re not going to hand it over without first being confident that they’ve got the means to pay you back. So why act differently when it’s your business?
Make sure you know as much as possible about a potential customer before you start trading with them. A good place to start is with a comprehensive financial report containing the company’s profit and loss, balance sheet and key ratios. Then, using this, set a credit limit based on a combination of predicted turnover and payment terms and put measures in place to monitor it on an ongoing basis.
itsettled offers free credit reports to all customers - learn more about this perk here.
When it comes to credit, there’s no such thing as an exception to the rule. Get a policy in place and ensure that it’s bought into by all departments and then stuck to from then on.
It’s relatively straightforward to construct a basic credit report, and this is essential for any business offering credit. This link contains a handy guide to what this should contain.
The key to effective credit control in any business is the human touch. It’s about establishing a relationship and then using this to ensure all communication is clear and timely.
A quick check with the customer to ensure they’ve received the invoice and there are no problems will make it considerably easier to chase should the debt fall overdue. And don’t be afraid to regularly check-in with customers that they’re satisfied with the collections process, or to make changes if it becomes clear that any are needed.
Credit control is a key role within any organisation, so recognise it as such. Giving the job to the wrong kind of person can be catastrophic as you could lose customers and cost the business a lot of money.
Don’t lump it in with the other responsibilities of someone in the finance or admin team. They more than likely won’t have the appropriate skills for both roles, meaning they will be reluctant to do it, and it will cease to be a priority.
Likewise, don’t make it the job of the salesperson or account manager with the best relationship with that customer. This leaves them in a compromised position as they will always have the carrot dangled of a new contract or more business if they allow extensions to the payment terms.
Depending on the size of your business, the best options are either to have a dedicated Credit Controller, or if this isn’t financially viable consider using an automated credit management software like itsettled.
There are many reasons why this is a good idea and can help to anticipate any potential issues:
In today’s economic climate it’s no longer enough to run an initial credit assessment and then monitor the finances for risk purposes. Make sure your business has a policy of communicating anything and everything that is heard about your customers, no matter how unimportant anyone will think it is.
This is where the strength of your customer relationships can help again. Don’t be afraid to open the lines of communication with your customer about any concerns, and even request management accounts if you feel this is appropriate.
There are several reports that will help you monitor the performance of the credit function in your business:
A combination of the above should be reviewed on a regular basis, with progress monitored closely and any issues acted on quickly.
Small and medium sized businesses (SMEs) across the UK are chasing a combined £50bn in late payments, and in the process are being distracted from their day-to-day operations. Follow the tips above and give your business the best chance of avoiding being added to this statistic.
For more insight on how much extra you could add to your cash flow and to see if your credit control is as effective as it should be, use our handy cashflow calculator.
Want to know how to read a credit report on your customers? You're in the right place.
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