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:
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 robust credit control 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. If not managed properly the case can end up in court, costing money and wasting time sometimes without any guarantees that you will be paid.
10. Further complications can arise if the Debt Collection Agency being used for any outsourced credit control is not suitably qualified.
Running a dedicated Credit Control team can be quite costly. Properly constructed legal Terms and Conditions, Wages, staff training, holiday’s and sick days all contribute to the overall costs. Research on late payment culture in the UK found that less than 50% of businesses had a strict credit control procedure and only 16% of nearly start-up businesses. For some businesses these cost can be too much to bear with the emphasis been on sales. However, the implications of this route can be dire; leaving directors, managers and workers to chip in or fit in Credit Control duties with their normal roles.
Here at First Capitol we offer a full range of Credit Control Management and Debt Recovery services with highly experienced staff and advanced IT systems to support you every step of the way. For as little as £1.49 per day your business can have a dedicated and professional Credit Control department that will seamlessly collect what you are owned and maintain your customer relationships. Contact us today! 03333 44499.
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Gus Anderson spent a number of years working for a renowned financial institution as an area manager. Gus was in charge of the collections and investigations team for the whole of East Anglia. In 2014 Gus joined the business as a collections manager and has so far has overseen the collection of nearly 4 million pounds worth of debt. Gus has a keen eye for detail and knows “fact from fiction”. He enjoys scuba diving and is a keen mountain bike rider in his spare time.
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