7 Tips for Effective Credit Control in Small Business

Many small businesses overlook the importance of credit control. They assume that because the orders and sales are rolling in thick and fast, everything is great. What they fail to realize is that if a few customers don’t pay, their cash flow will dry up.

You need to be proactive about collecting payments from your customers. It’s not enough to send out an invoice and forget about it. There will always be some customers who wait as long as possible before making payment. The problem is that if you don’t have enough money flowing into the business, it affects your ability to pay your own suppliers. Some might be understanding, but others, in particular the IRS, definitely won’t take kindly to being made to wait for payment.



The best way to manage your cash flow is to be on the ball with your credit control. The onus is on you to set up an effective credit control system. Accounts receivable financing will free up cash flow, but this doesn’t solve the underlying problem. Effective credit control should be implemented from the outset, so you start on the right foot. Here are some tips to get you started.

1. Use an Efficient Accounting System

It pays to be organized in business. A fully functional accounting system is essential, as this will help you to monitor your income and expenditure. There are plenty of free accounting systems, but many businesses prefer to use a recognized system such as Sage. If in doubt, ask your account for advice, but whatever you do, don’t ignore the day-to-day bookkeeping.

2. Carry out Credit Checks on New Customers

New customers are always an unknown quantity. Unless they come to you recommended by someone you trust implicitly, there is always a risk they won’t pay their invoices. For smaller amounts, this won’t be too much of a problem, but if you accept a large order from a new customer, run a credit check before you supply the goods or services. This will ensure you don’t end up out of pocket.

3. Clear Payment Terms
Are your payment terms crystal clear? If not, redesign your invoice template so that payment terms are visible. Decide what your payment terms should be. For example, for a new customer, payment in advance could be a smart move, but for an existing, loyal customer, you might be able to offer 30 or 45 days credit. Early payment discounts do encourage some customers to pay early, but don’t give them a discount up front, as they might take it and then not pay on time.

4. Invoice the Right Person / Department
Sending invoices to the wrong person or department is a real waste of time. If it takes you 30 days to issue a payment reminder, only to discover the invoice never arrived, you are starting from square one. In this day and age, it is better to email invoices, as there is no chance of them going astray in the post.

In larger companies, invoices often have to be authorized before being processed for payment. To avoid unnecessary delays, find out in advance who the person responsible for authorizing your invoices is, and then send your invoices directly to them.

5. Use Correct Reference Numbers
Don’t forget to include the correct reference numbers on your invoices (if applicable). Missing references will delay invoice payments.

6. Implement Late Payment Systems
An efficient accounting system makes it easy to check for outstanding debtors, but the system doesn’t work if nobody ever bothers chasing them up. Run regular reports to check which invoices are outstanding. Send out reminders the day after an invoice is due. If payment is still not forthcoming within 14 days of an overdue reminder, chase up the debt via telephone and in writing. If an invoice has been overlooked, lost in transit, or there is a dispute over the amount, deal with the issue politely and efficiently. Being polite costs nothing and is more likely to generate a positive outcome.

7. Employ Credit Collection Agents
If your credit control department is having problems collecting payment, it is often worth using a credit collection agency to do the legwork. These companies have more resources and are usually very effective in collecting money owed by persistent offenders. You will have to pay a fee for the service, but for a large outstanding invoice, the benefit normally outweighs the cost.

The best way to reduce outstanding debts is to build a positive relationship with your customers, as this makes it easier to deal with problems when they do arise.