What is Credit Control?
How to manage the clients you offer credit to
If you run a business that provides credit to customers, it is important that you put a strict credit control policy in place and review it on a regular basis. It can be difficult to contact a customer to request payment but there are steps that you can take to make it as easy and effective as possible. The only way to start with credit control is by fully explaining at the outset of the credit offer, before it is accepted, what the repayment schedule is and what options exist for falling behind on a payment, such as skip a payment or double the next payment, or even spread a missed payment out across the next two to three payments. A written explanation should be given in the contract so that the customer knows what they are agreeing to and do not get mad later on if they fail to pay and you go about the process of collection.
Ask for a contact name, address, telephone number and e-mail address for the business as well as the name of the authorised person in their organisation to send invoices to. Double check that you have the correct postal and email address details for sending invoices which might not be the same as the delivery address. Ask about the company’s process is for paying invoices – i.e. do the invoices need to be authorised by a manager, do they need a reference or purchase order number, and how often are payments made by the company. If you have this information right at the commencement of the credit agreement, credit control will be made much easier later on.
What's covered on this page
- What is Credit Control?
- How to manage the clients you offer credit to
- Terms and Conditions of Sale
- Credit Checks
- Credit Control – Invoices
- Accounts Recievable Statements
- Credit control – Contact your customer by phone
- Credit Control – Letters
- Using a collection agency or a credit controller
- Taking a customer to court
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Terms and Conditions of Sale
You have an obligation to give your customer a printed copy of your terms and conditions of the sale they are entering in to, which will include all of the credit terms that you have agreed. This can be given to the company with your invoice or as a separate document. Most businesses include a copy of their terms and conditions on sales and returns on their website.
Before you give a business credit, it is advisable to carry out a check on them. There are businesses that offer credit checks or you could choose to obtain information on a limited company from Companies House.
Credit Control – Invoices
Agreed terms must always be stated clearly on sales invoices including all of the terms which have been agreed. If your customer has their own internal purchase order number, make sure that it is included, or they might not be able to match it up in their accounts for quick payment.
Accounts Recievable Statements
Statement of accounts should be sent out to everyone that owes you money on a monthly basis which lists all the invoices that remain outstanding for payment by them to your business, and the total balance due. Some companies will double check that statements are accurate in case there are any discrepancies. If you use accounting software, you will be able to print them. If you do your bookkeeping by hand you can always find a template to follow.
Credit control – Contact your customer by phone
It is recommended to contact the customer by phone a few days before the invoice is due for payment to remind them that it is upcoming. If you never spoke to the accounts department before, start by introducing yourself and ask for a contact name, so that you will know who to speak to in the future. The types of questions you will ask include:
- Has the invoice been received?
- Does the invoice need to be authorised by management and if so has that been done?
- Is there any problem with the invoice? If so, what type of problem is it and what can be done to resolve the problem?
- When does the company run their payments? (This could be daily, weekly or monthly). When you know when payment runs are completed, this will help you to time when you send your statements and when you make follow-up calls.
If you have any problem in getting through to speak with the correct person or they cannot say for certain when invoice will be paid, ask to speak to the business manager or try contacting the person you sold the goods or services to.
Try not to call them too often – they may start to ignore you- and always try to be polite and professional.
Credit Control – Letters
If you do not get a reply from either sending a statement or phone calls, try to post a letter. The letter be clear and include the amount outstanding. It is a good idea to attach a statement or copy of the invoice in question, so they can easily reference it internally.
Some companies wait to pay until they are threatened to with a demand for payment, usually a seven day demand notice which states if the outstanding amount has not been paid within a certain period you will sue for the entire sum as well as any costs and interest will be passed on.
Using a collection agency or a credit controller
If you don’t have the time personally for credit control then it would be beneficial for you to use an agency or employing a credit controller. A credit agency works as a middle man; charges will be based on a percentage of the money collected by them on your debt.
Factoring has the advantage of releasing funds straight away without the need for waiting longer for payment from the customer. A factoring company will work for you to collect a debt from you at a percent of the invoice; this could be up to 95%. They will then collect the money outstanding from your customer and pay you the whatever is left after their fees are taken out.
This method will take away stress related to having a tight cash-flow and wipes out the need to find time for credit control. The disadvantages of factoring is of course that you only get a percent of the money you are owed, and you will also lose control of the supplier-customer link, which will likely fracture or destroy your relationships with your customer.
Taking a customer to court
If everything else fails then you might have to take your customer to court. If you have to do that you may be able to file online through the Money Claim On Line service offered by HM Courts. This way you have full control over the court process and do not need to use a solicitor. If you feel that you are better served by hiring a solicitor, there are many to choose from and you can locate one in your area that has experience in debt collection by searching for litigation solicitors.
Last modified: 8th March 2018