23 credit control mistakes that are killing your cash flow

15/11/2021

All successful business owners know that effective credit control is a vital element of success. It goes without saying that if a business isn’t being paid on time, its cash flow will be severely affected and the associated problems can quickly escalate.

But, despite knowing the importance of an effective credit control strategy, many business owners are still making some killer mistakes that can be easily avoided.

Here you will discover 23 common credit control mistakes and learn how to avoid them to ensure your business’s success.

1. No dedicated credit controller

Not all businesses have the capacity or requirement to employ a credit controller in-house, leaving existing employees to take on the task even if it’s not in their area of expertise. Not only does this take time away from your staff’s primary roles, they probably won’t be getting the best results possible.

2. Unclear payment terms

Unclear payment terms increase the chances of your customer missing a payment date. Always include your credit terms in a prominent position on your invoice where your customer can clearly see them. Better still, provide an exact date that payment must be received by so there is no room for dispute.

3. Outdated terms and conditions

With businesses constantly changing, failing to review and update your T&Cs could be holding your business back. Take the time to regularly review how your T&Cs are working and adjust your processes accordingly to improve your cash position.

4. Not knowing who handles payment

Often when dealing with large companies, the person you are corresponding with is not the person in charge of paying you. Make sure when sending the invoice you address it to the most relevant person. If you’re not sure who this is, ask, or you could face a long wait for your payment.

5. Not invoicing straight away

Any delay you make when invoicing will give your customer an excuse to stall payment. As soon as your goods or services have been provided send your customer an invoice.

6. Making errors on an invoice

Everyone makes mistakes, but a mistake on an invoice could lead to disputes on payment and be costly for your business. Always proofread for grammar, spelling and mathematical mistakes before sending to your customer. Here are 10 common invoicing mistakes to look out for.

7. Not offering a range of payment options

It’s always good to give customers a choice, so where possible try to offer a range of payment methods and make sure these are clearly stated on your invoices. The more options you give the easier you make it for your customer, which will increase your chances of being paid on time.

8. No strategy in place to deal with late payment

The longer an invoice is outstanding, the harder it will be for your business to collect. So, clearly set out a day-by-day strategy and make sure you train staff appropriately so that all stages are adequately completed and meticulously stuck to.

9. Failing to credit check new customers

Less than half of businesses credit check their customers, which could mean they’re offering credit to businesses who can’t or won’t pay. Credit reports allow you to instantly check a company or director’s credit rating online, allowing you to make quick, informed decisions about who you do business with, reducing the risk of late payment.

10. Failing to credit check existing customers

Credit checking shouldn’t be a one-off event when the first order is placed – it should be an ongoing task. Even the most reliable customers may have a change in circumstances which could affect their ability to pay on time.

11. Not setting credit limits

When you offer more credit late payment carries heavier consequences, so, using information gained from credit reports, set credit limits for each customer. This will stop your customers purchasing more than they can afford.

12. Continuing to supply late payers

Persistently late payers are never going to clean up their act if you keep letting them get away with it. It can often help to place the worst offenders on a ‘stop list’ and warn them that they will not be supplied with any further goods or services until all outstanding invoices have been settled.

13. Lacking consistency

If you apply strong credit control processes for a short period and then slacken off, you’ll lose many of the benefits. Be consistent in your efforts to achieve the best results.

14. Being too aggressive with your credit control

When it comes to credit control, you need to be firm but fair. Being aggressive towards customers is unnecessary and could damage relationships and your brand.

15. Being too passive with your credit control

Don’t let customers walk all over you or force you into accepting poor payment practices. You need to be strict with your payment terms to get the desired results.

16. Ignoring the warning signs

Failing to pay an outstanding invoice could be a sign that your customer is struggling. You need to take action as soon as possible to limit the damage to your cash flow. Likewise, a low credit rating should never be ignored; adjust your terms accordingly – or at the very least take extra caution when offering credit.

17. Wasting time chasing old debts

As debts get older they become harder to collect which can consume a great amount of your time and resource. Outsourcing these overdue invoices to a specialist debt collection agency, will remove the burden from your business and also bring their expertise to the process.

18. Not keeping records of correspondence

It is essential to keep a record of all correspondence, from letters and emails sent to phone calls made, not only for your own reference but in case there is a dispute with payment. This information could be useful evidence if you end up in court.

19. Believing all late payment excuses

Don’t take your customers’ late payment excuses at face value. More often than not, such excuses merely act as delaying tactics. Have procedures in place to deal with each of the common excuses to restrict their delaying power.

20. Incentivising sales team before payment is collected

A sale isn’t a sale until payment is received. So, rather than incentivising your team when an order is placed, do it once you’ve been paid instead. This will reduce the risk of overtrading and ensure staff are focused on those who are likely to pay.

21. Assuming legal action is the only option

Whilst the legal recovery process has its benefits it’s not the only option. Specialist commercial debt collection agencies excel at the recovery of outstanding debts and often their name alone will add further weight to your collections process, encouraging the customer to pay without the need to take the legal route.

22. Not charging interest

Many businesses are reluctant to apply late payment charges as they fear the customer will take its business elsewhere. But there is no point in having a customer who does not pay. You are entitled by law to charge interest on late payments, and making it clear in your Terms & Conditions at the outset can act as a great deterrent when your customer is wondering whether to delay payment or not. Find out how much you could claim using our calculator here.

23. Trying to do more than you can handle

Given how challenging and time-consuming the credit control process can be, it’s not surprising that some businesses are struggling to keep on top of it. By outsourcing your credit control function you could improve your cash flow and regain the time to focus on your core activity and growing your business.

If you need help with the recovery of an overdue invoice or a fully outsourced credit control facility, we can help. Please get in touch on 0800 9774848 or collections@hiltonbaird.co.uk to see how we can help your business get paid on time, every time.