How to do small business credit control

Credit control means taking meaningful action to ensure your clients pay invoices on time. If your customer owes you, you’re extending them credit. But if invoices are not paid on time, it can take its toll and leave gaps in your cash flow. In addition, chasing payments is a time-consuming task and, if not done delicately, can damage client relationships.

Keep reading on to find out how to do small business credit control by:

• Encouraging your clients to pay 
• Leveraging credit control techniques

Very few small businesses are likely to probably have credit control procedures, particularly when they first start. So if you’re one of them and you simply issue invoices and hope for the best, you’re not alone. But data shows that small businesses are often paid 30 days later than big companies. 

If you find yourself chasing late invoices regularly, it would probably help develop formal credit control procedures.

The best strategy for credit control is to get your clients to pay invoices on time and before the due date. When all invoices are paid on time, you don’t have to use other credit control strategies that often. 

There are a few simple things you can do to ensure clients pay their invoices on time, such as:

1. Sending invoices regularly 

Sending regular invoices to clients that have a running contract with you to remind them of their credit balance or when their next payment is due can make a big difference. For getting paid on time, make sure your invoices:

• Are sent quickly (Countingup lets you create and send invoices on the go. Find out more at the bottom of this article.)
• Can be paid easily
• Include the correct banking details
• Accept various payment methods, including online payments

For example, you could allow payment by bank transfer, credit or debit card and cash. If you give your customers options that are most convenient for them, you can significantly increase the number of invoices paid on time or at all.

2. Invoicing correctly

Make sure that invoices include all the correct information. This includes your payment details as well as accurate information on the goods or services the client received. Mistakes on your invoices can delay a transaction if the client attempts to transfer funds to incorrect payment details. 

In addition, if the client spots mistakes or incorrect items on the invoice, they could be worried about paying for the wrong thing and not pay the invoice at all. 

3. Anticipate potential problems

You might want to make a courtesy call to confirm that your customer is happy with the service or products and let them know the invoice due date in advance. This way can pre-empt any potential complaints about your work and resulting late payments. 

Contact your customer and communicate your payment term clearly and well in advance. This kind of routine procedure will show that your business is helpful and professional. It will also allow your customers to let you know if they’re expecting any cash flow problems. 

Keeping communication open will allow you to renegotiate payment terms or repayment plans if your customer is struggling to pay.

Implementing some pretty simple techniques to your credit control process can help you get paid without ruining client relationships and ensure you’re following best practices when dealing with late payments.  

Consider these strategies for better credit control:

1. Set straightforward payment terms and communicate them clearly

Make sure you communicate your payment terms. For example, if invoices must be paid in 14 days, let your customer know before accepting your offer. 

Also, let your customers know what happens if invoices are left unpaid. Doing that will allow them to know that you have a straightforward procedure in place for overdue payments and that you are prepared to take action if invoices are not paid on time.

2. Don’t ignore late payments

Chasing up late payments can feel awkward, and you might be worried about damaging your relationship with the client. But simply ignoring unpaid invoices could leave a dent in your finances, and there is little hope of receiving the cash without doing anything about it. 

If you let your clients know that inquiring about late payments is part of your standard procedure, you make it less personal but show them that you take it seriously. 

Keep a record of clients who don’t pay on time. Of course, you’re free not to take any further formal action, but knowing their past behaviour can help you decide if you want to do any further business with a particular client.

3. Stop all future services until debt is paid

Do this at your discretion. A customer who relies on your services could be motivated to pay outstanding debts if you deny any future services. But depending on your line of work, they might just walk away and find another provider.

4. Late fees and interest on past due invoices

Adding a late fee or an interest rate to invoices that are past their due date could get you some results. But make sure your customer is aware of these. Let them know of late fees or that an unpaid invoice will start accumulating interest after a certain period of time. 

When clients know that they might end up having to pay more than the original amount, they could be more inclined to do all they can to pay your invoice on time.

5. Take formal action

If you’ve given your client every opportunity to pay, but they still haven’t, you have options to take the matter further. You can consider invoice factoring, getting help from a debt collection agency or taking legal action through the small claims court. 

Implementing a proper credit control procedure will give you a paper trail that proves you’ve taken steps to receive your payment for those occasions where you need to take further action.

Create and send invoices in seconds with Countingup. The app also allows you to send reminders for unpaid invoices encouraging clients to make payments on time.

Thousands of business owners are using the Countingup app to save time on their financial admin and focus on growing their business. 

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for self-employed people across the UK.

With automatic expense categorisation, receipt capture tools and cash flow insights, you can confidently keep on top of your business finances and save yourself hours of accounting admin, so you can focus on doing what you do best. Find out more here.