Is trust killing your credit control process?

29/11/2018

Trust is a vital element of credit control.

You need enough trust to be able to offer attractive credit terms in order to win and retain customers, for example – but not so much that you put your business at risk of late or non-payment from poor paying or uncreditworthy customers.

Unfortunately, finding the right balance can be challenging for some businesses to master. Here, we consider how delicate this equilibrium can be and identify ways to help you find it.

Too little trust

With late and non-payment putting significant strain on small businesses’ cash flows it’s perhaps not surprising that many have trust issues.

While some customers simply can’t afford to pay, others deliberately stall payment to protect their own cash flow and fraud is growing increasingly prevalent.

Knowing how much benefit of the doubt to give the customer in the event they miss a payment deadline often comes down to trust, too. Do you believe the excuses they give and assurances that payment won’t be far away?

We’ve heard enough late payment excuses in our 17 years as a debt collection agency to know that trust from creditors can be in short supply. But you can’t let these issues remove all trust from your credit control process.

If you don’t trust any customers enough to trade with them on credit terms you could be missing out on potential business.

Offering credit terms allows you to trade with more businesses as some may be unprepared to pay for goods or services they haven’t yet received.

It sends a signal to potential buyers that your business is stable, established and trustworthy, which can help when winning the trust of new customers considering which supplier to work with.

Plus, customers trading on credit terms often spend more than those who are required to pay upfront, and they can be more loyal.

Customers might also focus less on price if they are able to pay on credit terms as the extension of credit can help with their own cash flow.

Too much trust

At the other end of the scale, being too trusting can result in you offering credit to those who can’t or won’t ever pay, which can be highly damaging to your cash flow.

Therefore, it’s essential that you remain cautious and think carefully about who you trade with on credit terms.

This is of course important when you first start to work together, but it remains essential throughout your entire business relationship.

Just because a customer is usually good at paying on time doesn’t mean that they always will be.

Unfortunately, in today’s turbulent economy even the most financially savvy businesses can suddenly experience poor cash flow.

It’s therefore wise to build a close relationship with your customers so you can spot any warning signs and act on them before it begins to impact your cash flow.

So, what’s the solution?

To a certain extent, trust in your customers needs to be earned as your relationships progress.

When you first start out a trading relationship you should get to know the customer to assess whether they pose a risk to your business.

You can achieve this by using account opening forms, credit reports and utilising online searches, such as the new payment reporting requirements.

All this information will give you an idea of their financial situation and the likelihood that they will pay.

Using this research, you can then decide the length of credit terms you offer, if at all. In some instances, you may want to choose to take full or partial payment upfront.

It is then possible to build trust by contacting your customer at regular intervals during the credit period. While building a rapport with them and getting to learn their behaviours, these calls also give them the opportunity to let you know of any potential issues, allowing you to take action when required.

It’s also vital that you trust those responsible for fulfilling your credit control.

Whether you perform the task in-house or outsource the function to a third party, you need to trust that your credit controllers can identify when to be more sceptical of late payment excuses.

This can make all the difference when it comes to collecting payment from customers, but also retaining relationships.