What is meant by credit control?
'Credit control' refers to the management of your business’ debts. When your customers buy products and services from you, they’re likely to pay after you invoice them. These invoices will have set payment terms, which will include the date by which the payment must be made. You can choose the length of your payment terms – they can be set as immediate, or might range anywhere from seven to 90 days.
How long should I give my customers to pay?
When you decide how long you want to give your customers to pay their invoices, you’ll need to consider your cash flow. You need to make sure that, while you wait for your customers to pay, you have access to enough cash to pay your own set outgoings. This is your credit control process.
A longer payment period can be attractive to customers. However, if you give your customers 90 days to pay up, you’ll likely be without that money for 90 days. You can incentivise them to pay earlier by offering an early bird discount, but you should always prepare to be without the cash for the maximum period. Longer payment terms can help you secure business and can help prevent late payments; you just need to make sure it works for you.
In an ideal world, customers would be happy with shorter payment terms and pay you as soon as they receive your goods or service. In reality, there may be many reasons a company or person can’t or won’t pay straight away. By insisting on a short payment term, you might lose customers. Or, if you do secure a sale, that customer is more likely to pay late, often meaning you have to invest time and money in chasing them up. See How to deal with late invoice payments.
Regardless of the payment term, an ongoing challenge in business is making sure these invoices are paid on time. Cashflow is important to any business. If too much money becomes tied up in unpaid invoices, it can put your business operations at risk and could cause you to have to take out short term loans to cover periods where you may be waiting for payment from your customers.
Chasing unpaid invoices
Whether you run a small business and chase your customers yourself or are part of a larger organisation that employs a team of people to do this, the process is called credit control. Chasing late invoices can be very costly for any business; there’s the cost of interest you’re missing out on by not having the cash in your account, there’s the cost of potential loans you might take out as a result of lack of cash flow – and there are the salary costs of hiring an individual credit controller or credit control firm. It can also be stressful, putting a strain on relationships with your customers.
What does a credit controller do?
A credit controller is someone who is employed by a company to manage the credit control process. The credit controller will keep a record of every invoice your company has issued – as well as their payment statuses.
The credit controller’s responsibility is to retrieve money from outstanding invoices, issuing reminders and going over payment terms. They’ll likely have to make numerous phone calls and send multiple emails to your customers and will often have to strike a balance between being firm and assertive with not damaging business relationships. It is often your credit controller’s job to negotiate payment dates and manage situations where the customer is struggling to pay.
The more customers you have, the more time consuming the credit control process will be. Your credit controllers can often be chasing large numbers of overdue invoices and dealing with a broad range of situations at any given time. They’ll likely have some invoices that are just a few days overdue but still require an investment of time to retrieve; other times they’ll have ongoing disputes where the client can’t or won’t pay.
Credit control can be extremely time-consuming and it takes a high degree of organisation, skill and effort to effectively converse with overdue customers.
Has what is meant by credit control changed?
Traditionally, credit control has been a manual process. For many businesses, manual spreadsheets are still a reality and are used to keep track of payment dates, email reminders and phone calls. The controller would have to manually update this document and proactively check it for information about invoice payment dates. Valuable time is also spent devising emails and making phone calls, opening your business up to the possibility of waiting weeks or even months for payment.
While it’s crucial that your credit controller has some form of verbal contact with clients regarding their late invoices, much of the credit control process can now be automated. These days, you can use advanced intelligent software like Credit Hound to control the process of chasing invoices. The smart system takes away many of the manual processes of credit control and sends a series of automatic reminders to customers even before their invoice due dates, meaning that you typically get paid faster.
The definition of what is meant by credit control has remained the same throughout the years. However, the process has drastically changed in line with modern technology and more intelligent systems. Where the process of chasing invoices was once a completely manual, proactive task, it is now possible to track all of your invoices and automate much of the chasing process. This frees up the time of your team to focus on customers that are likely to bring you repeat and reliable business, rather than on bad payers.
As we mentioned in a previous blog, 'How 2020 has changed the world of credit control and how to be better prepared for 2021' it’s likely to become increasingly important in a post-COVID world to grow relationships with a larger group of smaller, reliable customers, than accepting larger orders from those with a bad history. Technology, and advanced tools like Credit Hound, can play an important role in this process.
Get in touch with us today to find out how our technology could completely overhaul your credit control process.