All business owners struggle with late-paying customers at some point. It’s stressful, frustrating, and sadly, a pretty common problem. That’s where credit control comes in.
In our series of accounting FAQs, we’re covering common accounting terms and what they mean. This time we’ll be covering what credit control is, and how you can use it to keep on top of your cash flow.
What is credit control?
Credit control is basically a process for making sure your invoices get paid on time, by sending reminders as invoices become due, or overdue.
While a big organisation might be able to swallow the inconvenience of a slow-paying customer easily enough, it can be hugely disruptive for smaller businesses.
To combat the effect, credit control is a way of ensuring your customers don’t take too long to pay you.
How does credit control work?
When you send invoices out, they should include payment terms, such as payment on receipt, 30 days, or even 60 days in some cases. This indicates to your client the date by which you should be paid.
The due date is then used to follow-up unpaid invoices with clients, such as by phoning or emailing them. It sounds simple enough in theory, but managing invoices and payment dates can be time-consuming.
How can I keep records for credit control?
How you actually keep track of your invoices is up to you. The problem is that credit control can be pretty time-consuming, particularly if you have lots of clients. Some people like to use a spreadsheet, or you could cut down on time and admin and use bookkeeping software to handle it on an automated basis.
What’s important with either method is that you have a record of each follow-up for payment, and not just of the invoice being sent out. So, make notes on your spreadsheet, or let your software log each action as an audit trail.
It means that you’ll be able to spot patterns of clients who are consistently late paying their bills. It might be something you decide to take further action on, such as insisting on payment up front.
In most cases, customers have simply forgotten or misplaced your invoices and all it takes is a reminder. Be ready for those that you may need to chase several times!
Is there a way to get invoices paid faster?
Sending reminders about unpaid invoices before they’re actually overdue can be useful. You’ll be more likely to receive payment on time (helping you to pay your own bills on time), in a way that’s more customer-service friendly.
Bookkeeping software enables users to setup automatic email reminders for clients, at any interval they want. For example, you can send one out a week before it’s due and then send out late payment ones after the due date has passed.
In most cases, this will do the trick and prompt clients to pay their invoices, though there may well be those that you need to follow-up on personally. For those who simply forget to pay though, automated reminders are a great tool to save a chunk of time.
Another trick you can do is to make it easier for clients to pay directly from your invoices. Some software will allow you to add in a PayPal or Stripe button to your invoices, which reduces the steps it takes for a client to pay.