Effective credit control is essential to maintain the cashflow of your business. There are practical steps that you as a business can take to avoid bad debt and reduce the risk of your invoices being paid late or worse still, not at all.
Recovering a business debt
1. Know who you are trading with
It is important to verify your customer’s identity, trading status and their ability to pay before trading with them. You may want to:
- Collect identification documents
- Run credit checks
- Establish who will be your contact and who will be responsible for payment of your invoices.
- Ensure that the entity you are in the business agreement with is the one placing the orders. Be vigilant that a subsidiary or sister company does not try to place orders.
2. Set a Credit Limit
… and stick to it! If you are conducting initial credit checks at the start of your working relationship, this will enable you to set a credit limit. You can review your credit limit further along in the relationship should you wish to.
3. Provide customers with your Terms & Conditions of Business
Good up-to-date terms and conditions are vital to offer you protection from unpaid invoices. They also limit any liability you may face following the business transaction and provide you with security.
We would recommend that they are on all correspondence with your customer but should be provided, most importantly at the start of any agreement. It is also important to obtain their signature where possible. Your terms should include the consequences of late payment and the penalties associated with a breach of the terms and conditions. These consequences and penalties can be used to apply pressure and obtain payment from your debtor.
Terms and conditions are the basis on which you do business with your customer so it is very important to get them right. If you require help with drawing up new terms and conditions or reviewing your existing ones, Nelsons are happy to assist.
4. Ensure your invoices are timely and accurate
Your invoices should contain the correct company name, reference number and a clear breakdown of which goods/services the invoice relates to. It should also include details of how to pay and refer to your terms and conditions.
5. Effective credit control
Put in place a system to ensure you know when invoices are due and when payment becomes overdue. Credit control steps should be taken in an organised way. It is easier to manage if you have a procedure set to timescales and will ensure the invoice is continually chased. Telephone contact is the most effective form of credit control. Ensure you are speaking with the correct person and that they are able to authorise the payment of your invoice.
6. Resolve problems and eradicate excuses
If your customer has a query with the invoice or a complaint about your goods/services, they will ideally raise this early on. If not, you may find out about it when you commence your credit control procedure. Resolving the issue as soon as possible will ensure faster payment and may also improve goodwill from your customer.
Most excuses are a tactic to delay or avoid payment, so have processes in place to deal with them. If they claim not to have received your invoice confirm this is the only reason for non-payment and then re-issue the invoice. You can then call to check that this has been received. If your customer still avoids payment you are dealing with an excuse and not a genuine reason.
7. Keep accurate records of correspondence
All correspondence, whether letter, phone or e-mail should be recorded. This allows you to make decisions on how to proceed with the matter and may also assist with eradicating any excuses or queries your customer raises.
This file can then be passed across to your debt recovery provider who will need this information to successfully recover your debt. Clear information will help when drafting court papers and particulars of claim and will also help with their negotiations.
How Nelsons can help
There are few businesses who are debt free, but following the above tips will help reduce the amount of bad debt that your business has.
Should you require any assistance with recovering a business debt or drafting terms and conditions, please contact Simon Key or a member of our Debt Recovery team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.