Credit control is what a business does to reduce the time between supplying a customer with goods / services, and receiving payment. Because a business must balance their own financial health with managing their client relationships, credit control is a delicate balancing act.
Unfortunately, many new businesses do not have proper credit control procedures. Instead, it is common for them to issue invoices and expect quick payment settlement and do not follow up with their clients. This results in many unpaid invoices and cash flow issues. In this article, we look to outline 8 credit control mistakes SMEs want to avoid.
1. Unclear Payment Terms
Unless a business presents clear payment terms to their clients, it is possible that they can be confused and cause issues in the credit control process. For instance, they may not realize when payment is due, or what payment methods are accepted.
In order to avoid possible confusion, it’s best for a company to include specific clauses in their invoices and engagement letters that outline payment terms. For example, when issuing an engagement letter, make it clear that the subsequent invoice is to be settled within 30 days of the completion of an engagement. This ensures that there will be no mix-ups with the client and that they won’t have an excuse for why they haven’t settled their payment.
2. Slow Invoicing
The most basic way for a business to improve their credit control process is by issuing invoices to clients as quickly and as accurately as possible. They can do so by:
- Sending invoices as soon as the services / goods are delivered
- Email invoices rather than send by post
- Ensure that the invoice is addressed to the right person
- Ensure that there are no mistakes in the invoice.
After sending an invoice, it is also best to take time to confirm with clients to see whether they have received their invoice.
3. Not Offering a Range of Payment Methods
A business’ preferred payment methods may not be what is most convenient for their clients. This is especially true for eCommerce companies as customers from different countries may have their own preferred payment method. The more options a business provides their clients, the easier it is for them to settle their payments, increasing the chance of being paid on time.
Payment gateways are technologies that can be used to help process various customer payment methods. These not only include debit or credit card payments, but also alternative forms of payments such as PayPal and Stripe.
To facilitate the wide range of payment methods that can be used, any payment gateway adopted should be able to process the following types of payment methods:
- Online credit card
4. Failing to Credit Check Customers
Credit checks is the due diligence process of learning a client’s financial habits. For example, a business can gain insight on how often a customer leaves their invoices unsettled. Unfortunately, less than half of businesses credit check their customers, which means that they are often offering services to clients who cannot, or are not willing to pay.
Obtaining a credit report allows you to instantly run due diligence on a client and their key staff, allowing you to make quick, informed decisions about who you do business with, reducing the risk of late payment. Keep in mind that credit checks should not be one-off events, but rather, should be ongoing tasks. As the financial situation of your client can change in various circumstances, having previously settled payments does not always mean that they will be in the same position to do so at a later date.
5. Not Using the Right Tools
Credit control becomes more complex as a business grows and begins issuing an increasing amount of invoices per month. Not only does this result in more moving parts to keep track of, but handling emails, phone calls and written notes can add confusion when handling multiple clients.
Businesses can simplify the credit control process and obtain more visibility in the status of their invoices by managing all aspects of their payments centrally, through a singular cloud-based credit control software, such as Chaser.
Softwares like Chaser can connect to accounting systems and utilize the information on them to issue automated client-specific invoices. Furthermore, they keep track of all invoice communications and histories, providing insight into customers’ payment habits and thereby, optimize client chasing processes.
Most importantly, credit control tools can help automate all aspects of the credit control process, saving valuable time. In addition, automation can eliminate the chance of a human error occurring, such as forgetting to issue an invoice.
6. Not Having a Process to Issue Invoices / Chase
Credit control should be a collective goal of a company as all employees should be responsible for working towards the business’ financial health. Formal procedures are often necessary to simplify internal processes and make sure that everyone is on the same page.
By writing down formal processes, employees would have a clear understanding of how they should issue invoices, and what actions should be taken in the event they are outstanding. This reduces the occurrence of careless mistakes or ad-hoc responses.
Credit control software, like the ones previously mentioned, are also useful in that they can automate procedures set by its users, saving time and improving cash flow by minimizing the time your customers spend chasing invoices, and the time your staff spend chasing them.
7. Not Incentivizing Early Payment
Sometimes, the best way to encourage clients to settle their invoices early is to create incentives for them to do so. When issuing an invoice to clients, make it clear that late payments can incur possible fees and interest payments. If a company decides to issue invoices throughout the duration of the provision of services, advise the clients that goods or services may not be supplied until they have settled their invoices.
8. Not Calling Clients
A study from Chaser found that, while 80% of unpaid invoices can be collected through emails alone, sometimes that isn’t enough. It is easy for clients to ignore emails or messages reminding them to settle their payment if they are given the opportunity to do so.
However, ignoring frequent chasing becomes much more difficult for your clients if you call them directly. By speaking to them directly, your customers will have a harder time justifying late payments. In addition, if there are potential issues to sort out, you can discuss with them in real-time instead of spending a few days emailing back and forth.
Why You Should Work With FastLane
For businesses who want to streamline as many aspects of their internal operations as possible, credit control systems are a must have. Given the manual processes traditionally involved in credit control, and the time required to complete these tasks, Chaser is clearly a useful tool that can make your company more efficient.
For enquiries about the benefits of Chaser, or for assistance in implementing this platform, please contact the FastLane Group for support.
Specifically, we can assist in the following ways:
- 75% discount off your Chaser subscription (valid from now until 31 October 2020)
- Assist with Chaser setup
- Implement Xero, a cloud-accounting system that can be integrated with Chaser