Credit control and why it is more than crisis management

Whether credit control is handled in-house or outsourced, it’s a simple practice that often peaks when a business goes into crisis mode.

If a major customer doesn’t pay their invoice on time, or a persistent late payer raises an unreasonable payment dispute, credit control is often used extensively for crisis management rather than bad debt prevention.

Karl Hodson from UK Business Finance explains why credit control is more than crisis management and how it can be used to shape a company’s finances.

What is credit control?

Credit control is a process to verify that a debt owed to a business is paid on time. It protects the business against the risk of non-payment or late payment and can take many forms, from payment reminders, strict credit terms to bespoke payment invitations.

The purpose of credit control is to reduce the risk a business is exposed to and to establish a respectful payment arrangement between both parties. This can range in complexity from payment reminders to debt collection agency intervention after a payment has been delayed for a certain number of days.

Some examples of credit control processes:

Payment reminder templates: Credit control systems, including accounting software with credit control capabilities, often offer payment reminder templates to send customized follow-ups to late payers.

Personalized payment links: A direct link to the payment portal means customers don’t have to wait for payment details to be forwarded to them. The link will fill in information such as the amount to be paid and the breakdown of services provided to avoid delays.

Debt collection: If a payment is long overdue and therefore unlikely to be repaid, known as a bad debt, you can appoint a debt collection agency to intervene on your behalf to collect the debt.

According to Xero’s Small Business Index, UK invoices are paid significantly later (8.2 days) than Australia (6.5 days) and New Zealand (6.2 days), which is the longest since August 2020 is the highest lag time, which means businesses are out of pocket. for a longer period as a result of late payments.

A strong credit control strategy can prevent bad debts and reduce the number of days businesses wait for payments. Agree payment terms in advance, provide all the information the customer requires to pay, reinforce this with a payment reminder, and then confirm after receiving payment.

Credit control – a lifeline in a crisis

If a business depends on cash from high-value invoices to pay employees and pay major bills, alarm bells will ring loudly if a payment is late. While it’s a best practice to spread the risk across multiple clients rather than putting your eggs in one basket, this is a common problem faced by small businesses.

Use credit control systems to double down on late payers – record late payment, repeat contract terms and consequences such as interest and debt recovery intervention. Credit control can provide a lifeline during a crisis, but use it to avoid bad debt to prevent the next crisis.