Credit control might not be the most exciting thing on a business owner’s list of responsibilities, but it’s certainly one of the most important. If implemented properly, credit control procedures can be a huge help in maintaining positive cash flow and keeping your business healthy.
Unfortunately, many entrepreneurs today find it difficult to invest energy and resources into this particular side of the business as they believe it’s too complex or time consuming. But it really doesn’t have to be. Here are five simple tips that can help you create strong credit control procedures that work for your company:
1. Divide the process into three stages
Establishing guidelines for credit control is a huge undertaking, especially if you’re starting from scratch. To keep yourself from being overwhelmed, follow the “divide and conquer” approach.Split your credit control procedures into three stages: before the sale, during the sale, and after the sale. This way, it will be easier for you to create guidelines that are specific to the needs of each stage.For instance, since the Before the Sale stage is where you need to evaluate the creditworthiness of each new client, it would be best to use the following guidelines:
2. Conduct a thorough credit check for all new clients
Collate important contact details from corporate clients and ensure this information is always updated. Establish clear and specific credit terms and make sure clients understand it well. Create an organised timetable for your sales process. Make sure this is in line with your credit terms. Set up well-defined payment policies and go over them with clients to make sure you are in agreement. Find more tips on how to improve the During the Sale and After the Sale stages of your credit control process.
3. Regularly review your sales ledger
Set up a time every month to go over your sales ledger so you can check which invoices have exceeded their payment terms. This will also allow you to determine how much money you still need to collect and how much you’ve already received. By regularly reviewing your sales ledger, you can make sure that your company is always on track financially.
4. Always update your cash flow forecasts
This should go hand in hand with reviewing your sales ledger. Once you know how many invoices will exceed their credit terms, you must adjust your cash flow forecast accordingly. You may need to reduce on spending or look for other funding options like invoice financing to make up for gaps in your company’s cash flow.By updating your cash flow forecast whenever an invoice exceeds its credit terms, you can to avoid any unpleasant financial surprises and keep your business running smoothly.
5. Upgrade your credit control timeline
This involves making small changes to each step of your credit control timeline to increase efficiency.
Here are some tips you can use:
Day 1: Invoicing. Dutifully proofread all invoices to make sure all necessary information are accurate. Make sure your payment terms are clearly stated in the invoice.
Day 7: Invoice Receipt Confirmation. Make a courtesy call to confirm client received the invoice. Consider offering early payment discounts to motivate customers to pay right away.
Day 20: Second Follow-Up Call. Make another follow-up call to remind the client about the debt and the due date. Offer several payment methods that help make the transaction easier for the customer. Make it possible to take payment over the phone so clients will be encouraged to pay on time.
6. Create a watch list and always update it
Compile “watch list” of existing clients who consistently pay late or those with very poor credit ratings. Refrain from offering these customers with new credit terms until their previous balances have been settled. You may need the help of professional debt collection agency in New Zealand to make sure these debts are successfully recovered. You might also consider outsourcing your credit collection to free you up and allow you to focus on more essential business matters. For more tips on how to improve your credit control procedures, contact our team at 0800 445 870 or send us an email at info@slaterbyrne.co.nz