Credit Control Tips (Part 1)

The survival and prosperity of all small, medium and large businesses is dependent upon receipt of payment from customers in respect of the product and services that the business provides and invoice for.  It is not sufficient to secure the sales order and provide the product if that sale cannot be converted into cash. Cash is the lifeblood of every business and if debtors don’t pay outstanding invoices promptly it can spell disaster.

Many businesses are forced to offer credit terms to customers in order to remain competitive and win orders but this has a negative effect upon their cash flow.  The damage caused by non payment (bad debts) can also be significant, and the longer the period of credit that is offered the more opportunity there is for the customer’s circumstances to change, and hence payment to be delayed – in some cases permanently.  The secret to success is good credit management and credit control.

There are two aspects to successful credit management.  The first is taking care in choosing the businesses that you will offer credit terms.  The second is to develop and employ an effective system of credit control techniques to collect unpaid invoices.


The following tips may be helpful when deciding whether or not to offer credit terms to a customer:

  • Always confirm the exact trading name of the customer e.g. XYZ Limited; XYZ Plc; Mr X and Mr Y trading as XYZ; or Mr X trading as XYZ.  All of these are uniquely different and knowing the exact trading name can be vital in pursing a customer for payment through the legal system, should the need arise.  The customer’s headed stationery, business cards or brochures can often be helpful in determining the exact name, although remember they can be incorrect.
  • Offer the minimum credit period that will be competitively acceptable.  The longer the credit period the more chance there is that the customer’s financial circumstances may change.
  • Make sure that you have all the customer’s contact details: addresses, phone numbers, fax numbers, mobile numbers, email addresses etc.  If possible, take the contact details of the prime movers.  These can be extremely helpful if you need to contact the customer regarding unpaid invoices in the future.
  • Trade references can be helpful but most businesses will have at least a couple of customers that will speak well of them.
  • Credit information about customers can be purchased from a variety of providers.  This can give you insight into the financial position of a business.  You can also ask the customer to provide you with financial information about their business.
  • If a considerable amount of credit will be at stake consider visiting the customer to confirm that the address given exists.  A great deal of information about a business can often be gained just by visiting their offices and noticing what is going on e.g. are they busy or is trade slack?
  • Ensure that the customer has seen your terms of trade and has accepted the credit terms that you have agreed to offer.
  • Make sure you understand the process for submitting your invoices and receiving payment from the customer e.g. who do you send them to, when is their cheque run etc.


The following tips and hints may be useful in ensuring that you have an effective credit control process in place to collect unpaid sales invoices:

  • Understand the customer’s payment process and procedures e.g. if you know the date that they undertake their monthly cheque run you can time your statement accordingly.
  • Consider “pre-dunning”, calling the customer before payment is due to confirm that your invoice has been received and that there are no reasons for non payment.
  • Establish a systematic approach to issuing statements, sending chasing letters (which gradually become firmer) and calling the customers.
  • Keep copies of any correspondence and notes about telephone conversations.  Confirm conversations in writing and if possible gain the customer’s written agreement to any payment promises.
  • Try to call back and speak to the individuals concerned rather than leaving messages on answer machines.
  • Consider other methods of contacting debtors e.g. text messages to mobile numbers or email and fax.
  • Always remain calm but assertive on the telephone.
  • Follow up promptly on any broken promises of payment.
  • Shorten the process by emailing or faxing documents rather than posting.
  • If necessary consider stopping further deliveries once invoices are overdue.

The field of credit management and credit control is vast and these are only a few key points to consider.  Many businesses have staff in-house that undertake this work for them but there are alternatives.

Factoring companies specialise in out-sourcing such services for their clients.  They have specialist staff that can undertake the collection of your sales ledger for you and in many cases this can be achieved with cost savings.  The cost of factoring should be weighed against the cost of recruiting specialist staff or handling the task yourself.

It is also possible to receive credit insurance which can eliminate the need for you to worry about which customers are credit worthy.  The factoring company will research the customers standing for you and they will grant an insured credit limit for each customer.

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