Tips for Credit Control Success

Effective credit control is essential for maintaining the financial health of any business. By ensuring that customers pay their invoices on time, companies can maintain cash flow, reduce the risk of bad debt, and foster strong customer relationships. Here, we’ll look at practical tips for credit control success, explore the role of a credit controller, and outline key credit control procedures.

What is credit control?

Credit control is the process of managing and regulating the credit extended to customers to ensure that payments are collected in a timely manner. This involves assessing the creditworthiness of customers, setting credit limits, monitoring outstanding accounts, and taking action to collect overdue payments.

What is the role of a credit controller?

A credit controller plays a crucial role during credit control procedures. Their responsibilities include:

• Assessing creditworthiness: Evaluating the financial stability and credit history of potential customers before granting credit.
• Setting credit limits: Establishing appropriate credit limits based on customer assessments.
• Monitoring accounts: Keeping track of outstanding invoices and ensuring that payments are made on time.
• Chasing payments: Following up with customers on overdue accounts and negotiating payment plans if necessary.
• Reporting: Providing regular reports on the status of accounts receivable and any issues related to credit control.

Credit control procedures

It’s important to have well-defined credit control procedures in place to ensure that credit control is effective. Let’s take a look at some key steps that need to be taken to make sure that this process is as efficient as possible. 

Customer credit assessment

Before extending credit, conduct thorough credit checks on potential customers. This includes reviewing credit reports, financial statements, and references from other suppliers.

Set credit terms 

Clearly define the terms of credit, including payment due dates, early payment discounts, and penalties for late payments. 

Communicate these terms to customers upfront so that they understand what is expected of them in any of these situations. This may also prevent any late payments. 

Invoicing 

Issue invoices promptly and ensure they are accurate and detailed. Include all necessary information such as payment terms, due date, and payment methods.

Regular monitoring

Keep a close eye on outstanding invoices and regularly update your accounts receivable ledger. Use accounting software to automate this process and set up alerts for overdue accounts, too. This will also help you stay up to date with where certain accounts are in the process. 

Reminders and follow-ups

Send reminders to customers before and after the payment due date. Start with friendly reminders and gradually escalate to more formal communications if payments remain outstanding.

Payment plans

Be flexible and willing to negotiate payment plans with customers who are experiencing financial difficulties. This can help maintain a conducive relationship and increase the likelihood of payments being made. 

Debt collection 

If an account becomes significantly overdue, consider involving a debt collection agency or taking legal action. Ensure that all communications are documented and adhere to legal requirements.

Review and adjust credit policies

Regularly review your credit control procedures and policies to ensure they are effective. You can also adjust credit limits and terms based on customer payment behaviour and market conditions. 

Tips for credit control success

To achieve success in credit control, consider understanding your customers' financial situations and payment behaviours so that you can help tailor your credit control approach. You can also regularly update customer profiles and adjust credit terms as needed along the way. This is known as the ‘Know Your Customer’ phenomenon. 

Also, maintain open and clear communication with your customers. Clearly explain your credit terms and follow up on outstanding payments promptly and professionally, as discussed earlier.

Next, utilise accounting software and automation tools to streamline credit control procedures. Automated reminders and tracking systems can save time and reduce human error when chasing up late payments. 

Another important aspect of credit control success is ensuring that your credit control team is well-trained and up-to-date with the latest techniques and legal requirements. You can make sure that this is the case by providing ongoing training and support when necessary.

Equally, set clear performance metrics for your credit control team, such as days sales outstanding (DSO) and collection rates. Regularly review these metrics and take action to address any issues.

Be sure to take a more proactive approach and don’t wait for payments to become overdue before taking action. Proactively monitor accounts and follow up with customers ahead of payment due dates to make sure they have plenty of time to make the payment.

Build strong relationships with your customers based on trust and mutual respect. A positive relationship can improve the reliability of your customers, including payment reliability and will facilitate easier negotiations when issues arise. 

Apply your credit control policies consistently across all customers. This ensures fairness and reduces the risk of disputes.

Effective credit control is vital for maintaining a healthy cash flow and reducing the risk of bad debt. By understanding the role of a credit controller, implementing robust credit control procedures, and following best practices, your business will be sure to achieve credit control success. 

Remember, the key to effective credit control lies in knowing your customers, maintaining clear communication, leveraging technology, and being proactive in managing outstanding accounts. By following these tips, you can ensure that your credit control procedures are efficient and effective, and contribute to the overall financial stability of your business.

If you’re stuck and need more advice on credit control success, get in touch with us at Creditserve on 01992 414222.