It appears that one of the gravest insults you can give to a business owner is to suggest that their credit control is poor; yet in a large number of cases, small businesses are running debtors up to, and sometimes exceeding 90 days. (this is a particular problem for businesses which are discounting invoices, as the debt gets passed back at this point).
It is a depressing truth that an unprofitable business with good cash management can limp along for a long time, whereas a profitable business with poor cash management can go bust very quickly.
With the help of our customers, we have compliled a simple and impartial guide to credit control, which can be downloaded from our website Business Funding Portal.
If your business really doesn't have the time or resource to to run these procedures, I would strongly suggest that you look at outourcing the entire function - outsource comanies can be found through this site, or I would be happy to refer some.
If you need help in bringing those aged accounts up to speed, please get in touch and we can help.
Above all, don't run your business for your customers' benefit!
Large companies take the proverbial out of smaller ones. All the time. Staying on top of your credit control requires a robust process, which should kick in the moment at invoice hits the due date, not even one day later. It should then follow through systematically to legal recovery, robustly and relentlessly.
Deliberate late payment is not professional. Help your clients be professional!
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Paul Norman - OrangeTree Development
One current client runs a fundamentally viable hire business, but is dogged by late payment from small business. His view is that they are good clients (even though they don't pay!) and that they are having problems collecting payment themselves. It's very big-hearted, but won't save his business!
There is generally no need for aggression, a personal visit is highly effective. we generally engage with the debtor and highlight that our client, too is an independent business and that they rely on prompt payment to maintain their service. In 80% of cases it is possible to reach an amicible payment agreement in a single visit
I'm fairly lucky in that most of my clients pay their monthly fees by standing order, so I very rarely have to chase people for money. Our T&Cs also state that no work is started until the set up fee is received, so we're lucky on that count too.
In the past though we're had some real p*sstakers - of all sizes and backgrounds.
One of our current clients pays regularly, but regularly is every 3 invoices - which is cool because it's a bigger sum coming into the bank and we know that's how they pay and just kind of 'let it happen', but was annoyng until we realised the pattern!
The main trick is being organised - if you know who owes you money, you can decide what (if anything) to do about it.
It also helps you to spot trends, especially worsening ones, so you can remove yourself from potential bad debts situations!
One of my new clients was really struggling to get cash in, until we started sending out statements - such a small, simple thing but it has produced brilliant results...
I do agree that it is not just big vs small, actually!! Good point!!
At the moment it is mainly larger clients I am having to chase though! But, large and small, some will take too long to pay, even after you have courteously pursued them!
It is the rough and tumble of business, I know, but I also beleive that paying slowly reflects unfavourably on your business, and if you can pay faster, you should.
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Paul Norman - OrangeTree Development
Sorry for being boring, but for me this is a cash flow issue. Too many people don't understand cash flow - and that's why some perfectly good businesses go bust.
When we first started out, just over 3 years ago, our credit control was awful. As with a lot of new business owners, when we got up and running we suddenly realised that there were more things we didn't know - than things we did.
Nowadays it's quite good, I think. We generate and email invoices upon completion of work (as with everyone), on agreed terms, with a covering letter.
A week before the invoice is due for payment, if it has not yet been paid, we send a polite note to the relevant personages, gently reminding them that it is due in a week - and that if for any reason they will not be able to pay on time, they should contact us.
Theres a process for dealing with late payments, as well, but we generally find that as long as the note above is polite and the relationship with the client is stable enough, they will call if they aren't going to pay on time. Which is a thousand times better than not paying without any contact.
I certainly wish this was something I'd had more experience of when we started - our cash flow caused us loads of problems back then!
Thanks for the link - have just down loaded but could have done with it a few weeks back.
I have worked with one client for nearly 2 years and had payment terms agreed when contract signed. Payment terms are issued on the invoice as 14 days and that late payment fees will be charged. Having charged fees for late payment on 3/4 occasions over the last year, was surprised in May when the client's finance office queried both payment terms (not enough time between them receiving the invoice and payment due date, they said) and also the rate of late payment fees charged.
We argued the toss over 10 days and, wanting to keep the client, I agreed to new T&Cs (I know, I shouldn't have but didn't want to loose the client) of 21 days and invoicing twice a month against 14 days and invoicing once a month (slightly better for cash flow actually). And this from a company that fights for small businesses and their right to set payment terms!
Could you believe it, when I issued my next invoice it was in the bank within 7 days!
All other clients are on the same payment T&Cs and I get paid on time every time.
I have to say that I found a very effective method of credit control by paying our sales people commission on money received rather than orders taken....
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How good is your credit control?
