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Improving Credit Control – Best Practices for Businesses

Last modified: March 26, 2024

Every business implements a form of credit control, either to ensure a healthy cash flow into the business, to set a foundation for overall financial stability, or both. As an essential aspect of any business that offers credit, improving credit control so your business can mitigate risks of late payments and bad debts and ensure financial security is the key to a growing business.

While debt collection strategies are necessary for resolving outstanding accounts, preventative measures focused on credit control should be your first line of defence against financial disruptions.

This informative article will delve into the best practices for strengthening your business’s credit control management by drawing on the extensive expertise of Frontline Collections, one of the UK’s longest-running private debt collection agencies. These tips can help all types of businesses, from a general small business or a specialist enterprise such as a retail business.

Conducting Thorough Credit Checks
One of the first steps toward effective credit control management is conducting thorough credit checks on prospective clients. This establishes a baseline for whether or not the customer’s credit history warrants a change in credit control.

  • Gather Relevant Information. Your first step should be to obtain essential information from the potential client, including their full name, trading address, company registration number (if applicable), and contact details.
  • Access Credit Reports. Credit rating agencies, such as Experian or Creditsafe, offer access to credit reports that provide insights into the client’s financial standing, including payment history, available credit, and outstanding debts.
  • Verify Their References. Contact the potential client’s trade references to validate their payment history and financial conduct. These references serve as a valuable source of firsthand information on the client’s payment habits and financial reliability.

Setting Appropriate Credit Terms

Establishing clear credit terms aligns your client’s expectations with your business’s financial needs.

  • Determine Credit Limits. Set appropriate credit limits based on the client’s creditworthiness, as indicated by the credit check. These limits should be reviewed periodically and adjusted as required.
  • Payment Terms. Establish payment terms tailored to your business needs while taking the client’s financial capabilities into account. Terms might include advance payment, cash on delivery, or a 30-day payment period.
  • Late Payment Penalties. Outline penalties for late or missed payments in your credit terms, such as charging interest on outstanding amounts or incorporating late fees. These penalties serve as an incentive for clients to adhere to payment deadlines.

Improving Credit Control - Best Practices for Businesses Frontline Collections

Optimising Your Invoicing Process

Efficient invoicing processes can significantly impact your business’s cash flow and ability to adhere to credit control practices.

  • Invoice Promptly and Accurately. Ensure invoices are issued as soon as possible and contain accurate and detailed information about the goods or services rendered, including their cost, payment terms, and due dates.
  • Monitor Invoices. Actively monitor your issued invoices by regularly reviewing the status of outstanding payments and following up with clients as necessary.
  • Utilise Invoicing Software. Employ invoicing software to automate your invoicing process. This software can streamline invoice creation, tracking, and follow-up processes, helping to maintain compliance with credit control practices and prompt client communication.

Maintaining Clear & Regular Communication

Clear and regular communication with clients is central to successful credit control.

  • Set Expectations. Communication should begin at the start of the business relationship and set expectations for payment terms and methods. This defines a clear communication channel for any payment concerns or issues.
  • Tailor Communication. Adjust your communication style, channel, and frequency to suit the needs of individual clients.
  • Proactive Follow-Up. Maintain a proactive approach to client follow-up should any payment issues arise by using reminders and check-ins to maintain the momentum of the credit control process.

Ongoing Monitoring & Review

Regular review and maintenance of your credit control policies are crucial to maintaining their effectiveness.

  • Evaluate Current Practices. Routinely audit your credit control policies to assess their efficiency and make any necessary adjustments to better meet your business’s needs.
  • Monitor Client Performance. Continually monitor individual client performance regarding credit and late payments. Adjust their credit terms and limits as necessary to reflect any changes in their financial capabilities.
  • Review External Factors. Regularly assess the overall market and macroeconomic factors that may impact your client’s financial circumstances, adjusting your credit control practices to suit the current climate.

Wrapping Up: Credit Control Improvements

Robust credit checks combined with appropriate credit terms and regular client communication will allow your business to navigate the many complexities that surround credit management and achieve lasting success.

As a foremost specialist in private debt collection, Frontline Collections is well-positioned to provide expert advice and insights, ensuring that your business continues to thrive and prosper amid competitive market conditions. Whether it’s recovering monies from a limited company or sole traders, we can help your debt recovery endeavours.