Why Credit Control is Important
Let’s face it, late payments and the debt collection process can be quite stressful for any business, whether a sole trader, SME or a larger outfit. With a recent study confirming that SMEs in the UK are owed £14.2 billion in late payments, it is unlikely that the issue will be going away anytime soon.
It’s worth remembering that the Credit reference agencies provided a valuable service to help businesses determine who to lend to; however, there is a large proportion of business to business credit that is still done on trust. Unless there are written director’s guarantees in place there are never any real guarantees that payment will be forthcoming. That is why it is imperative that businesses protect themselves on a daily basis to prevent bad debt from occurring in the first place.Here are 10 reasons why you need to have a robust credit control procedure in place:
Benefits of outsourced credit management
According to statistics, three-quarters of small businesses have had late payments in the past twelve months. Some businesses state that one-third of all invoices sent are paid late. This silent killer of businesses needs to be better managed as late payments can result in poor cash flow.
However, managing late payments is challenging for many organisations. They just don’t have the staff to dedicate to such operations. As such, about two-thirds of small businesses have written off unpaid invoices within the past year. About 20% of these businesses have written off more than £5,000.
This is where outsourced credit management can help. So, what are the benefits?
1. Free up time of your staff
Chasing payments is not productive for your staff. They should be servicing your customers and offering the best experience to them. It is also an additional cost to your business to have your staff constantly chase late payments. This can result in a net loss for your company having to chase those payments.
2. Get expert credit management
Unless you’ve hired a professional credit controller, there is little chance that your staff aren’t going to be experts at credit control. Those who have trained and have experience are able to collect late payments quicker and at a lower cost, which is what you get when you outsource credit management.
3. Improve morale
One of the most demoralising tasks within a company is constantly chasing late payments. This can have a knock-on impact on other operations in your business. This could result in your staff giving poorer performances to other customers.
4. Have a professional credit management profile
Staff without the necessary training might not follow the best, professional credit management processes. This can come across as unprofessional and, as a result, damage relations between you and clients that you might want to keep despite their paying behaviour.
5. You can get good advice on how and when to escalate late payment claims
Sometimes you need to escalate claims for late invoices. However, without experience or knowledge, you might know when this is applicable. You might then do it too soon, or too late to properly resolve the issues. A professional credit control team can help you know when the best time is to escalate the process.
Conclusion
An outsourced credit management team is the best way to prevent your business from having cash flow problems. They will ensure late payments are collected as quickly as possible with little hassle to you. Therefore, you and your team are free to concentrate on building your business.
Best reasons to outsource your business credit control
There are lots of great reasons for businesses of any size to outsource their credit control. Good credit control means business cash flow is maximised to the fullest extent at all times, however, finding time and staff members to carry out this activity can be difficult for many organisations. The First Capitol credit control team has put together these useful tips to explain why outsourcing credit control is a good idea.
Why outsource business credit control?
Credit control can be a time-consuming activity for businesses of any size, and many smaller organisations just don’t appreciate how critical it is for ongoing cash flow. When it comes to larger businesses, the constraints of running busy finance departments may mean credit control activities are tasks that can get missed.
Failing to appreciate just how important good credit control is for the business can tip the financial balance, however. Staying up to speed with credit control makes it far easier to maintain positive cash flow at all times.
Why outsource credit control?
It’s becoming quite common for businesses to outsource credit control to professionals nowadays, as it tends to make it far easier to ensure continued cash flow. When carried out correctly, outsourced credit control provides a number of benefits to companies, including:
- Freeing up time for finance teams
- Cost effective financial control solutions when compared to the costs of hiring a dedicated credit controller in the business
One of the major benefits of outsourcing your business credit control is the improvement to cash flow. Healthy cash balances make it much easier to run your business effectively and outsourcing the credit control activities means providers aim to collect your cash within due date timeframes.
Using a professional outsourced credit collections agency for credit control can be very beneficial to business organisations of any size.
First Capitol offers expert credit collection services to business and our team is dedicated to collecting the cash your business is owed at the time it is due. What’s more, using First Capitol for credit control makes it easier to pass overdue invoices straight over to our debt collection teams, if the need arises.
Get in touch with First Capitol today to find out more.
10 compelling reasons why you need Credit Control
Let’s face it, late payments and the debt collection process can be quite stressful for any business, whether a sole trader, SME or a larger outfit. With a recent study confirming that SMEs in the UK are owed £14.2 billion in late payments, it is unlikely that the issue will be going away anytime soon.
Here are 10 reasons why you need to have a robust credit control procedure in place:
1. The impact of late payments can be severe, sometimes resulting in insolvency.
2. Late payments are one of the main reasons for cash flow difficulties in any business; a good credit management system will help you avoid cash flow difficulties.
3. You avoid a situation where staff may need to take home a reduced wage in order to maintain cash flow in the business. This does happen. A recent study conducted by the BACS payment schemes ltd revealed that approximately 20% of company directors have taken a salary cut to maintain company cash flow.
4. Limited cash flow also limits the amount of cash available to place further orders with suppliers.
5. You minimise the extent to which you need to rely on overdrafts or other credit facilities, some of which can have quite high-interest rates and other charges.
6. Debt collection can be very time-consuming. Staff can easily end up spending hours on a daily basis chasing late payments rather than spending that time more productively on the business.
7. If the debt collection process is not conducted properly, some debt may eventually have to be written off which reduces profitability.
8. Relationships with customers and suppliers can break down if the debt collection process is not handled properly.
9. The case can end up in court if it is not managed properly.
10. Further complications can arise if the Debt Collection Agency being used for any outsourced credit control is not suitably qualified.
Here at First Capitol, we offer a full range of debt recovery services with highly experienced staff and advanced IT systems to support you every step of the way. Contact us today!
11 things most credit controllers forget to do
The companies that come out ahead will be the ones that are most efficient at collecting unpaid debts. The question is, are your credit control team up to the task? To find out we’ve identified 11 things that the most successful credit controllers do but that most departments don’t.
Does your credit control department forget to do any of these:
1. Create a credit control plan
All credit control departments should have a written plan that dictates the process for the collection of unpaid debts. The plan should include timescales, the communications to be sent and when to escalate to a debt collections agency.
2. Credit check every customer old and new
Customers should be credit checked regularly, not just new customers, but existing ones as well. Company finances can change quickly, so that credit check you carried out five years ago may no longer be relevant.
3. Chase overdue payments the moment they are due
You’ll be amazed how many companies leave chasing payment until the very last moment. Once your customers know that you won’t start collecting overdue payments until six weeks after they are due, it only encourages them to delay further.
4. Oursource unpaid debts to a debt collections agency
There comes a point when no amount of calling will make a difference. If a customer refuses to settle its time to contract the services of a professional debt collections agency. It may cost you more, but you will at least get some money back.
5. Put bad payers on a stop list
As soon as a customer has failed to pay, it is a good idea to put them on a stop list. Your credit control plan should stipulate the time period before bad payers are placed on a stop list. Once this time has elapsed, it should be actioned. No excuses.
6. Charge late payment fees
There is no better way of encouraging people to pay than threatening them with extra interest charges. Late payment fees should be a part of your credit terms, so don’t forget to apply them when they are due.
7. Remember cash is king
Bad debts can affect cash flow, so it’s a good idea for credit controllers to be aware of current cash flow projections. This can help them spot potential problems down the line and encourage them to double their efforts to collect delinquent debts in order to prevent cash flow problems from occurring.
8. Never give up chasing debts
It can be tempting after 30 phone calls, 20 letters and the threat of court action to write off a debt and move on. This is especially true for smaller debts. But these small amounts soon start adding up to a significant amount of money. That’s why the most efficient credit controllers never give up chasing any debt, no matter how small.
9. Build strong relationships
One of the best ways of preventing bad debts from occurring in the first place is to build strong relationships with your customers. This not only increases the prospect of your bills being paid on time, it also encourages them to call you if there is a potential issue.
10. Ask for help when they need it
Good credit controllers know they can’t do everything themselves, this is a stressful job so it’s important that they know where to get help as and when they need it. No matter if its obtaining legal advice, contracting a debt collections agency or negotiating a settlement. Help is there if you need it, so make sure you ask for it.
11. Negotiate payment plans with delinquent debtors
There comes a point when it becomes clear that your debtors can’t pay their debts. At this point, you could employ the services of a debt collections agency for a settlement, but that still won’t get the desired result if they genuinely can’t pay. In this scenario, a payment plan can help you secure at least some of the outstanding debt.
It should be part of your companies credit control plan to evaluate how important a customer is to your business, which debt recovery measures to apply and the timescales involved. But no matter what your company policy is, always remember that the money owed belongs to you. Fearing customer reprisals should never be a basis for avoiding the collection of unpaid debts.
Why you should spend more time thinking about credit control
Check whether customers are creditworthy
Gaining testimonials from existing suppliers can demonstrate well that a customer is efficient with payments, and will not end up costing you and your business precious time and money. You might also ask the customer for a reference from their bank, to ensure they are sensible spenders. Credit reference agencies are also a great way to go, particularly as they save businesses time.
Make sure terms and conditions are precise and accurate
Clearly stating when payment is due is an absolutely essential step in making sure your business receives the money it’s owed. Built in to this should be expectations regarding what will happen should payment be missed or delayed, as penalties can be a strong incentive for customers to make their payments on time. On the flip side, perks and rewards for early payments can be a great way to ensure debts are paid on time and to gain a level of trust from the customer.
Outsource when it all gets too much
Ultimately, the time spent undertaking credit control procedures could be spent doing productive things to further a business. It is, however, as we’ve explored, a hugely important part of any successful business. Outsourcing can be the perfect solution to this and, with the right provider, should not cost huge amounts.
For more information regarding what credit control solutions could do for you, visit First Capitol today!
