If you’re waiting until a payment is late to begin implementing credit control strategies, you are waiting too long. Good credit control should begin as soon as an order is placed, to help you avoid the risk of late payment and bad debt.

The most critical period in the credit control process begins before the sale. At this point you have your client’s attention, they clearly want to buy, and your relationship with them will be at a high point.  If the issue is clearly discussed and documented upfront it rarely becomes a contentious issue down the line.

To help improve your current credit control strategy, here are EFMs top 5 effective strategies that should become second nature in your credit control cycle.

Clearly state your terms and conditions

Make sure that your terms and conditions are clear across all your correspondence (contracts, order confirmations and invoices) as well as informing the customer during the sales process, make reference to where the T&Cs can be found. Have your T&Cs available on your website, which gives you the opportunity to update them periodically.

You should explain your credit control procedure in the event of late payment, whether it’s charging interest, taking legal action or passing the client to a collection agency.

If you are selling products, ensure that title (ownership) does not change until the debt is fully paid.

Maintaining a clear and consistent approach to your terms and conditions will demonstrate to the client that you do not condone late payment and are prepared to act if they do not pay.

Invoice quickly and accurately

This may sound obvious, but many companies still find they have room to improve here. As some businesses won’t pay until they receive an invoice, you want to make sure this happens as quickly as possible to avoid delays. Emailing an invoice is quicker than sending it by post.

You should also make sure the information is correct and clear, with the following information included:

• Addressed to the right person
• Detailed description of goods and costs
• Date of shipping/services performed
• Reference number
• Purchase order number (if required)
• How and where to pay
• Credit terms

Once you have sent the invoice, and if it is of significant value, then it will always be useful to conform that the customer has received the invoice, so there are no disputes and they are aware of the date it must be paid.

Make it easy to get paid

Review how you ask customers to pay their invoices. This can help you to make your credit control more efficient. There are many payment methods that could work well for you.

Cheques must be posted, take longer to clear and are prone to human error. They are also susceptible to excuses such as ‘the cheque is in the post’.

BACS payments, meanwhile, increase the speed and reduces the admin burden on all parties.

Direct debits and company credit cards can make the payment easier, and standing orders work well for customers who pay a set amount on a monthly basis.  Also, this hugely reduces the risk of bad debt.

There also a lot of other online methods such as Stripe, PayPal and Go Cardless, but these essentially involve another step and additional charges.

Encourage early payment

It may be more beneficial to your business to be paid most of the value early, rather than waiting for the full amount. Early settlement discounts can be a good way to incentivise customers to pay quickly, making sure you don’t run into cashflow problems.

This would invariably lead to a slightly lower profit margin, and its effectiveness would depend on the impact it has on your business. However, the discount doesn’t need to be excessive or offered to every customer, it can simply be used for those who have a past record of not making payments on time.

Maintain a positive relationship

As with all your client communications with, the better the relationship is the better the outcome is likely to be. A strong relationship will encourage them to do business with you again as well as improving your chances of being paid on time.

In addition to building a rapport during the sales process, taking the time to make follow up calls and maintain a relationship will undoubtedly help. Following up on the delivery of the invoice and checking to see if the customer is happy, are good ways to achieve this and to subtly test to see if there is going to be a problem with the debt.

If you don’t already, any sales reward scheme should be triggered on the payment been made by the customer. This keeps them motivated to reduce disputes and ensures credit control best practice is front of mind from the outset and should also discourage them from overselling.

Finally, when a customer does pay on time make sure to reach out and thank them!

If you want to find out more about how our EFM Expert team can help you to improve your credit control performance, you can contact the central team on 01582 516300 or email [email protected] for your free one hour consultation to see how EFM can help support your business.