Cash in For Success: Lesson 5

"Credit control" is the discipline and function of controlling the amount of credit your customers are getting from you. It exists to ensure that your customers do not take more credit from you than you want to give them.

In this short article I just want to cover the bit of credit control relating to chasing for payment. So I thought it might be helpful to outline some ideas for what you could put in your credit control procedures. The specifics may be different for every business, but some of the general themes should be helpful to all businesses that allow customers to take some amount of credit. (Because of this, when I refer to 'you' doing things, please assume I mean the royal you, including the credit controller, bookkeeper, management accountant, finance manager, financial controller!)

1. Remind the customer about invoices just before due

If you are supplying products in volume, so that you are constantly sending out invoices, then you should send your customers a statement of invoices not yet paid, every month or maybe even every week.

On a set day every week, make a list of all the customers that will have invoices due for payment within the next 3-7 days (depending what you think is best). Give them a courtesy call. Now when I say a "courtesy call", that's exactly what it should be - courteous. You are not chasing for payment in this call, nor are you raking up the fact that they didn't pay the last one on time (necessarily). So the call should be pleasant and without pressure.

The purpose of the call is to, a) ensure that the customer has received the invoice; b) check they have processed it fully and there are no problems with it; and c) find out when they expect to be able to pay the invoice. Don't expect the customer to give you a firm promise at that stage (if they do that's a bonus, and something you can hold them to). You are just trying to get a rough idea for your cashflow forecasting.

2. Politely remind the customer about unpaid invoices just after they are due

On your credit control day each week, make another list of customers whose invoices have only just gone overdue in the last week.

This call is the same in tone as the last one - very easy going and polite - but this time try to get some sort of commitment to a payment date, preferably in a matter of days.

3. Chase by phone two or three times at weekly intervals

Your other lists will be made up of customers whose invoices are further overdue, and are also past the date they promised on the last call. At least at this early stage, there is no need to call a customer who last week promised to pay in two weeks time!

The next two or three times you call the customer about overdue invoices, you will be reminding them of promises made, and asking them politely to make new promises, but without making threats or warnings.

4. Warn them when an escalation step is about to be reached

By "escalation step" I mean a point at which you turn up the heat! That means either the point at which you start charging late payment interest, the point at which you make contact higher up in the company, the point you stop supplies to the customer, or the points at which you start various steps of legal proceedings (including formal insolvency/bankruptcy proceedings). That's probably roughly the order to step up in turning up the heat, and you should give the customer adequate time to pay between each step.

You will still be asking for commitments for payment dates at this stage, but at the same time you will be telling the customer when you want to be paid, i.e. immediately. Their promised date does not have to be accepted, and you will be giving them deadlines and chasing and escalating immediately deadlines are missed.

5. Always carry out your threats

Treat customers like children (in that regard only!). If you don't do what you say you are going to do (escalate to the MD or start legal proceedings), then you will never get customers paying on time, because they will never take your threats seriously.

6. Be fair and continue to love doing business with your customer

Be absolutely fair, legal and reasonable in everything you threaten and do. Unless they are very bad payers you may reasonably want them to buy from you again. So don't be rude or aggressive. But don't wimp out on collecting your cash either.

7. Finally, get things in writing

Always keep written records of each contact with the customer, including promised payment dates and reasons for late-payment. Always record what you have threatened, so that you remember to carry out the threat if necessary. And for the more serious escalation steps (stopping supply and taking legal action) make sure that you have informed the customer in writing, even if you have informed them in some other way.

All the best!