Are You on Top of Credit Control With What’s Coming, You Need to Be…

Mar 21 2023 Financial Management

Businesses exist to make money, but what happens when customers don’t (or can’t) pay? When their debt to you mounts up? When your cashflow, consequently, takes a big hit? 

This is where credit control – managing, mitigating, and recovering debt due to your business – comes into play, and the fact is that in the current economic climate your business is increasingly likely to need it. 

Why? Because with energy costs, inflation, and interest rates rising inexorably, thousands of UK companies are on the brink of collapse – 36% more in the final quarter of 2022 than in the same quarter of 2021, it is reported– and so the likelihood your business could be impacted by defaulters is now greater than ever. Equally, your own business is battling the same rising costs, so getting cash into your coffers from those who owe it to you is paramount. 

So, how do you go about “doing” credit control? 

How does EFM do credit control? 

To counter the risk cost-effectively, you need a Credit Controller who is adept and experienced at contributing to credit control meetings where they already exist, and proactively setting them up where they don’t – both, importantly, in the presence of the Financial Director (FD) and the Managing Director, if a key and large customer. 

At EFM, we provide outsourced, part-time Credit Controllers (and FDs, if required) to deliver this service to your business at far less cost than the equivalent full-time, salaried posts. 

But whilst it’s tempting to think of Credit Controllers simply as chasers of debt, (and that is indeed an important part of the role), in actual fact our credit control specialists are also analytical professionals with strong credit control experience, whose goal is not just to get debtors to pay, but to improve the cash collection process within a business. 

What improvements do EFM Credit Controllers deliver? 

This means, for example, ensuring that payment terms and conditions are clearly stated, that invoicing happens quickly and accurately, that payment methods are convenient and easy for customers to understand, and that there are sensible ways to encourage early or part payment. 

It also means – crucially – preserving cordial relationships with the business’s customers, and doing things when you say you will, such as call-backs, to maximise goodwill and avoid burning bridges. Many customers, after all, may well be going through the same process with their own debtors. 

The combined effect of recovering debt and putting in place the initiatives above will tend to make sales more profitable. This is an achievement any FD would regard as critical and is therefore another compelling reason to ensure both Credit Controllers and FDs are present in the same credit control meetings. 

What services are on offer? 

We recognise that every client is different, but with a 12-point credit control service offering – plus, of course, the ability to provide a part-time FD at the same time, if required – there is enough flexibility and scope to enable us to fit with any business’s credit control needs. 

From chasing debt by phone and email, to providing audit trails for legal action, to collection systems analysis, implementation, and improvement, and much more, credit control done the EFM way fits with the business’s priorities first and foremost. 

Proven effectiveness, better financial outcomes 

As an example of how EFM’s credit control services mitigate debtor risk and enable your business to secure better financial outcomes in testing circumstances, one UK business that chose to engage a part-time, outsourced EFM Credit Controller reduced its debt by well over 43%, and its aged debt by almost two-thirds. 

Not only was this a significant strengthening of the business’s overall balance sheet position, it was also an extremely important strategic achievement, as it paved the way for the business being able to secure additional funding. 

You can read the full case study here. 

Credit control: critical from the start 

Whilst current economic conditions make adequate credit control more urgent than ever, it’s important to remember that credit control should be in place in every business from the earliest stages of its incorporation. 

It all starts with credit management when taking on a new customer – checking them out, credit-referencing them, understanding what they need from you to pay you, and so forth. 

Smaller and newer businesses are, if anything, far more vulnerable to one major payment default than a longer-established business with a larger client base and wider spread of revenue sources. Making yourself a priority for payment over those companies not chasing debt with a credit controller improves your chances of being paid. 

If this seems a little paranoid, consider this: late payments cause cash flow issues that see over 50,000 UK small and medium enterprises (SMEs) go out of business in a year. 

With those sort of casualty rates, getting on top of credit control sooner rather than later – and at considerably less expense than employing a Credit Controller full-time – seems like a no-brainer. 

For more information on how EFM can help your company manage its debtors to overcome the challenges of high inflation, rising energy bills and rising interest rates, contact us. 

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