Credit Control - 7 ways to get paid on time, every time

Cash is the life blood of any business. And in the first couple of years of your new venture, the ability to get cash into your business bank account faster than it goes out again will be one of the main measures of it being a viable business.

One of the reasons some businesses go under is simply that they run out of cash. They have a profitable business but they don’t chase slow-paying customers. Without clear credit control procedures the business can’t grow and is in extreme danger of not being able to pay its own bills. That’s the start of a slippery slope that can end in the destruction of years of hard work.

Don’t let your new business die this way. Build good credit control into your operations from day one. Here are Bytestart’s seven ways to get paid on time, every time.

1. Clearly set your expectations

The first step for your new business is to work out how quickly you would like to be paid, balanced against the realities of the markets you operate in. It would be lovely to see the cash within 7 days of delivering the product. Unfortunately that’s unrealistic if you supply companies that automatically expect 90 days’ credit without asking.

Your standard credit terms should also be set by how quickly you have to pay for raw materials to provide your product or service. If the goal is to get the money in your bank before it goes out again and your suppliers expect payment in 28 days, then perhaps you should set terms of 14 days.

Don’t be scared to communicate your payment expectations to customers. Get used to telling them about terms of payment during the sale process. Put payment terms into your standard terms & conditions, customer contracts, and state them clearly on every invoice.

2. Make it easy to be paid

Nothing’s more frustrating in 2008 than getting an invoice from a business that only accepts cheques! There are so many better ways to get money out of your customers – and most are faster too.

Offer as many ways of getting paid as you can. Be clear who cheques must be paid out to, and give your bank details (account number and sort code) to accept BACS payments. Help customers set up standing orders if they pay you the same amount regularly, or consider using a company to collect Direct Debits for irregular amounts. Be aware it can be expensive to collect Direct Debits, and your business won’t be allowed to do it unless it passes a stringent set of rules.

You could also consider accepting PayPal, or if customers would prefer to pay with credit cards, register with Google Checkout for a cheap way to take credit card payments online.

3. Credit check new customers

Credit checks only cost a few pounds but could save you thousands in the long-term. How do you know that you’ll ever be paid for the dream deal you’re signing today? If you have to buy in materials to deliver, you’ll be out of pocket.

Credit checking won’t guarantee payment. But it gives you valuable information about the credit worthiness of your potential customer, allowing you to make a better decision about the order. Customers that aren’t good for the credit but really want what you sell may pay some money up front.

4. Encourage prompt payment

Carrots always work better than sticks. So tell your customers they can have a percentage discount if they pay your invoice within seven days. Make the amount they could save clear on the invoice and encourage it. Your business will be in a much better financial state if you can get a large chunk of your customers paying quickly. And you could always build the discount into your pricing structure.

5. Have a clear procedure for credit control

Set a clear procedure for credit control with standard reminder letters to send out after 7 days, 14 days, 28 days etc. The letters should be polite but insistent, and remind your customer that you have the legal right to charge interest on the debt from the day it was due. You could also find a reliable and reputable debt collection agency, and use their name in letters to show you mean business.

When a debt has reached the end of your process just hand it over. Most debt agencies say the earlier they get the debt the more likely they are to recover it – getting a call from an agency wakes up most solvent businesses.

6. Don’t be afraid to take action

The worst thing you can do when a customer doesn’t pay on time is to bury your head in the sand and hope for the best… hey, maybe your customer will wake up one morning with a pang of conscience and get their cheque book out!

No. Truth is, they will be too busy running their business to worry about yours. Customers that don’t pay must be reminded to take action. And don’t fall into the trap of not wanting to chase a customer for payment, for fear of losing them. A customer that places orders but doesn’t pay for them is a threat to your business.

7. Treat credit control as an important job every week

Put 30 minutes a week to one side to deal with credit control, and don’t let anything get in the way! The secret of good credit control is tracking every invoice and knowing what’s owed to you at any one moment. This is easy if you don’t let problems pile up, and pass bad debts on to an expert when you can’t take them any further. The peace of mind this will give you will free your time to focus on more important things in your business.