Useful Tips |
Is the Credit Crunch Affecting your Business?
• More so now than ever, it is important that you have a firm grip on your credit control (cash flow). Many businesses view credit control as an inconvenience and therefore do not take it seriously. They fumble their way through preferring to be on the telephone selling, or visiting customers, in fact anything except picking up the phone and asking their customers for payment!
Using Third Parties to undertake your debt collection
• If your invoice payment terms are 30 days and you have debts in your 60 days and older column, you should be looking to instruct a third party (such as ourselves) to collect these debts for you......
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Useful Tips
Is your credit controlling you or are you controlling it?
There is only one thing worse than having no work - and that is having lots of work, but not being paid for it! To minimise the risk of this happening to you, you should take the following credit control precautions.
You should know the financial strength of the company you are doing business with or proposing to do business with. This is a good indication as to whether or not you are likely to be paid on time or even be paid at all! See “Credit Checking – Worth doing or not?”
There must be proof that the customer to whom you supplied your goods or service actually placed an order with you. In an ideal world there will be a signed order, or a purchase order form the customer to you for purchase of the goods or service. In today’s “I want it now” society, getting a signed order is not always possible. An e-mail, Fax or letter from the customer to you or from you to the customer is just as good. The important thing is you must be able to demonstrate that an order has been placed.
You must always ensure that your customer is aware of your terms of business or sale before they do business with you. Including your terms of business on the back of your invoice is a good way of re-enforcing your terms, but, it cannot be your only method of hi-lighting your terms.
Always ensure that the details on your invoices are accurate, since inaccuracies will damage your credibility and will be used by the customer as an excuse for delaying payment.
Make sure that you:
- Address the invoice correctly (to include a full post code)
- Find out where the invoices should be sent and for who’s attention
- You include a reference to the buyer of the goods or service
- Quote any reference or purchase order number you have been given
- Include a detailed narrative on the invoice that actually means something to the buyer of the goods or service (Purchase of 1 x HP56213 doesn’t mean anything, whereas; Purchase of 1 x HP LaserJet Printer in accordance with our agreement with Joe Bloggs does!)
Send invoices as soon as possible - not only is this necessary to establish the correct date for VAT purposes, but it also starts the credit-period clock ticking.
If you are to stand a chance of being paid on time, you must contact your customer at least 2 weeks before payment is due to verify that:
- The invoice has been received and is correct:
- There are no queries or issues
- Payment will be made on time
It is preferable for you to make this initial contact by telephone. However, a well-worded letter will also do the trick.
If there are any queries or issues, or the customer needs a copy of the invoice it then buys you time to deal with this before payment is due rather than after. In other words being pro-active means there is still a good chance you will be paid on time.
You must have a consistent approach to credit control. There must be a credit control process or policy in place (we can help you with this).
It is never a good idea to try to run your own credit control by using Excel Spreadsheets or similar. You need a good accounts package in order to manage and maintain your sales ledger and keep track of who owes you money and for how long. We recommend Sage Line 50 above any other accounts package. Better still why not outsource your credit control function to us?
We use key performance indicators to assess our own performance. One of the simplest KPI’s is to look at the percentage of debtors who have owed you money for more than 90 days. Generally speaking, if your payment terms are 30 days (or less) there should be no more than 10% of your ledger by value owed to you beyond 90 days. We would suggest that you review percentage of debtors over 90 days at the end of each month. If you would like us to e-mail a copy of our spreadsheet, please contact us via our on-line query form and we will e-mail it to you
Get to know the person who writes the cheques - and become their "friend".
It is often helpful to bring the problem of the unpaid debt to the attention of the buyer of your goods or your service, and suggest to them that you cannot guarantee future service/goods until the account is settled.
Ultimately, if your customer persistently fails to pay it may be appropriate to refer the account to a Debt Collection Agency such as “Credit Control Solutions”.
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