Credit Control Procedures

[DavidWH]

We're learning the painful way that we need to tighten up credit control.

We have customers of varying sizes - some large PLC's, some Smaller Ltd's, sole traders, and consumers, all on varying credit terms.

Out typical terms are:

60days EOM - Typically large PLC's
60 Days - Our larger Ltd's
30 Days - Smaller Ltd's/Sole Traders/
COD/COC - Individuals where they pay on collection/delivery

We've been that busy getting work out of the door we've neglected our credit control.

Firstly - We plan to scrap the COD/COC routine - we have a £100 job that's sat here waiting to be collected that's not been paid for. A little annoying.

Secondly - We need enforce our credit limits, we have on occasions let customers rack up more credit than we agreed simply to get the work. This has now left us in a position of chasing around £2000, where we agreed £500. Our own fault.

I'm noticing that some overdue invoices aren't getting chased, which then invites the customer to take advantage as they know we don't have our eye on the ball.

So, what are the best procedures to improve our credit control?

Make a call x days before an invoice becomes due?
Call x days after it becomes due?
Put account on stop X Days after it becomes due?
More calls at X Days?
Letters?

We don't want to appear desperate for money (we're not) and don't want to become a nuisance, but just a gentle reminder that we know they owe us money, and can they pay us.

What are the general rules?

 

[StevensOnln1]

Get a credit card terminal if you don't already have one, then call all customers with overdue accounts and try obtain payment by card when possible.

You could set a limit where all orders below this amount or from non-business customers must be paid upfront. Require all new customers requesting credit to complete an application form so you can properly vet them before agreeing a credit limit and try to get payment upfront on the first order.

Sent from my GT-P1000 using UK Business Forums

 

[Geoff T]

Sounds to me like you need a professional credit control manager if I'm honest... either an employee or a consultant...

They can help you to:

1. set up a control control policy (sorting credit limits, collections process, query management, etc)
2. manage the collections process - either directly or indirectly

that's for starters...

No matter how you deal with this though, now you're thinking about it - get it right... some of the decisions you end up facing might not be palatable, but if you're serious about getting this right - and protecting your business - then the investment in time now will draw benefits for years to come...

best of luck... and I hope it helps the strategic thinking needed in the first instance...

 

[DavidWH]

Thanks for the advice, we're making progress. I've had a very productive evening, and very exciting, setting up some reports in sage.


Customer invoices (30&60 day terms) that are due within 7 days
Customer invoices (30&60 day terms) that are one week overdue
Customer invoices (30&60 day terms) that are two weeks overdue

The plan is that each Monday I run each report, those invoices due within 7days get a duplicate invoice e-mailed reminding them payment is due within 7 days.

The following week a phone call, and then a further call the week after, then we start on the letters.

Trouble is convincing my Old Man this is how to do things! If an account goes overdue by X days, their account should be put on stop. Same if they exceed their agreed credit limit.

We need to sit down and decide at what point certain things happen, account on stop/debt collection agency/SCC.

 

[Geoff T]

Thanks for the advice, we're making progress. I've had a very productive evening, and very exciting, setting up some reports in sage.

Happy to offer... Sage can be SUCH fun!

Trouble is convincing my Old Man this is how to do things! If an account goes overdue by X days, their account should be put on stop. Same if they exceed their agreed credit limit.

We need to sit down and decide at what point certain things happen, account on stop/debt collection agency/SCC.

This is the "credit control policy" bit I mentioned... bit like an "add on" to the business plan - I'm sure you and your old man will work it out

 

[Johnny Martin]

Hi Seymour Sign & Print - sounds like you are experiencing usual growing pains. However you have cracked the secret which is developing financial routines and proceedures. As Financial Fitness Coach for QuickBooks a key tool I recommend is the age receivable report. Also:
- make sure you have terms and conditions
- link payment terms to your price negotiations especially with the big boys
- always get PO numbers
- if you have an online accounting system you can have client outstanding information on your smartphone http://www.intuit.co.uk/index.jsp
- learn how to calculate debtor days ratios to see if you are getting more efficient chasing in the money.

 

[businessfunding]

We don't want to appear desperate for money (we're not) and don't want to become a nuisance, but just a gentle reminder that we know they owe us money, and can they pay us.

What are the general rules?

A common misconception, but good credit control won't look desperate, it will look professional.

And if they are rubbish payers, be a nuisance!

 

[Geoff T]

Hi Seymour Sign & Print - sounds like you are experiencing usual growing pains. However you have cracked the secret which is developing financial routines and proceedures. As Financial Fitness Coach for QuickBooks a key tool I recommend is the age receivable report. Also:
- make sure you have current/relevant terms and conditions
- make sure you credit check, and monitor, your customers' credit rating
- link payment terms to your price negotiations especially with the big boys
- always get PO numbers
- if you have an online accounting system you can have client outstanding information on your smartphone http://www.intuit.co.uk/index.jsp
- learn how to calculate debtor days ratios to see if you are getting more efficient chasing in the money.

While I agree with Mr Martin, I've added a couple of important bits in red (above)

A common misconception, but good credit control won't look desperate, it will look professional.

And if they are rubbish payers, be a nuisance!

"nuisance" might be the wrong word, but going after "your" money is not desperate - it's just sensible business... in that I agree...

I always say that you should NEVER be afraid to ask (in the right way) for the money you are rightfully owed!

 

[Newchodge]

Just a thought -

You plan to send a duplicate invoice 7 days before due date. I realise that a sensible client will see, from the fact that it says duplicate, and has the same invoice number as the original, that it is a reminder; however not all clients are sensible and you may find this creates work with clients paying twice or complaining about being billed for work not ordered or supplied. Might it be better just to email a reminder referring to the original invoice?

 

[DavidWH]

Good points made and taken on board.

I will just send a generic e-mail to our customers reminding them that their invoice is due.

And telephone them weekly chasing the debt. Persistence pays off.

 

[nelioneil]

A good idea a week before the invoice is due , you can phone up the accounts department as a "courtesy" call and ask if they have received your invoice.

If they have not received the invoice, offer to send a copy via email, unless they specifically ask via post.

A week later you can phone them up and ask if the invoice has been cleared to be paid.

I also would reconsider your payment terms with the big corporates. Just because it's a large organisation, it gives no excuse for them to trying to dictate your payment terms. The FTSE companies especially got some bad press about a year ago for late paying and an MP named a few. It should never ever take 2 months to sign off and pay an invoice.

 

[Geoff T]

And telephone them weekly chasing the debt. Persistence pays off.

VERY TRUE... and if you don't have the time to do it... there's others that can...

 

[Berics Accounting]

I agree with Geoff. There are many companies, (including mine ) that will manage the credit control side of your business on your behalf. One thing to note is that a professional company doesnt cost the earth. Chances are, its a lot more cost effective than you may think.

 

[Geoff T]

I agree with Geoff. There are many companies, (including mine ) that will manage the credit control side of your business on your behalf. One thing to note is that a professional company doesnt cost the earth. Chances are, its a lot more cost effective than you may think.

true enough - haven't in 4yrs proved to be more expensive than getting an employee instead, and a lot more experienced and knowledgeable to boot!

enough trumpet blowing - off to collect money for others!

 

[CJC123]

Hi David,
If you ever want to outsource this, PM me. We can discuss payment options. Prices would be tailored to you affordability.

If you prefer to do the job yourself, I wish you all the best. Go get 'em!

 

[Geoff T]

Would be nice to hear from the OP to see how things have changed, and how they are going as a result... 3 months is enough time to see the differences...

 

[svlegal]

There are various things you can do. Check out my website for a free guide to cash flow. Best to keep things tight from the outset. Once payment terms are allowed to slip, it can be difficult to get a client to tow the line again.

 

[DavidWH]

Well here's a small update:

We've started working with Judges Demand (I'm sure there a member here) as they're based in Merseyside so not a million miles away from us and they came and met us.

We now credit check all customers (Provided by Judges Demand)
We have started issuing pro-forma invoices and not commencing any work until they're paid. irrespective of how urgent a job is to the customer until payment is made we don't start.

Meeting with the accountant yesterday and we're in a much better position now than 3 months ago!

 

[svlegal]

That is great news.

 

[Geoff T]

I tried to stop meself... but can't! told you it would work!

good for you - and judges demand... good job folks... end of the day, getting clients paid is the best pay off...

 

[Collect Your Cash]

Just shows the IMPORTANCE of a credit control process.

 

[MIL Collections]

Hi David,

I would recommend getting a good Debt Collection Agency in to deal with accounts when they are overdue, most DCA's will be able to provide a softer approach to collect the monies for the ones that aren't too far over due, as well as still maintaining a professional relationship.

It means you don't have to spend time worrying about it or doing it, leave it to the professionals and most will be able to add the collection fees on top as long as this is clear in your invoice and terms and conditions. Also means they are less likely to default on their account again.

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