Get Your Credit Under Control
There’s an old saying that ‘a sale is not a sale until it is paid for’. This statement underlines one of the biggest problems for small businesses – getting paid on time.
The issue is that many business owners shy away from the systems and processes that are essential to securing prompt payment. Often the reason given for this is ‘concern over losing customers’. This begs the question, ‘what is custom worth without payment?’ So, in the fight against late payment, it pays to invest the time in credit management.
The impact of late payment on cash flow is the most serious problem facing small businesses right now. According to BACS, small businesses in the UK are currently owed £30.2 billion in overdue payments.
Here are some top tips for getting paid on time:
Stress your payment terms on every order, as a condition of sale supersedes any buyer’s terms. Send it to a named person with the relevant authority. On account application forms, include a paragraph for the buyer to sign, agreeing to comply with your stated payment terms and conditions of sale. Show the payment terms and the due date boldly; e.g. ‘Payment Terms: 30 days from invoice date - payment to reach us by 14th March x’.
You cannot expect customers to pay against incorrect invoices. Include your payment terms and due date, date, delivery date and method, description, price and total payable and especially the customer order number or payment authorisation. Send your invoice to a named individual, with the authority to approve or make payment.
Invoice within 24 hours of a chargeable event. Remember, nothing happens until your bill gets into the customer’s payment process.
An Aged Debt Analysis (or list of debts outstanding according to amount of time outstanding) is the essential working tool for collection. List accounts in order of size - largest debt first and chase them in that order. Phone major accounts in advance of due dates to ensure payments are in process, in time to solve problems before your deadline.
Incorporate phone calls into your collection strategy. A good strategy will timetable appropriate dates for issuing invoices, making phone calls and issuing reminders.
Check that the information relating to the outstanding debt is correct, and that the information is readily available when making the call, i.e. the account number, the credit limit available to the debtor, the invoice date and the balance due.
Be courteous and professional but act on what you say you are going to do. If the final demand does not work, its threat must be carried out. Bluffs are soon seen as weakness.
As we enter a period of economic recovery, effective credit control cannot be allowed to slip because of the lure of new business. Remember, payment is illusory until it is in your bank account.
This article was written by:
John Wilde, Sales & Marketing Director, Metro Bank SME Finance