Doing business can be exciting, especially when big contracts with new customers are first signed. But if the customer does not pay on time, or even not at all, then the good times can quickly turn to hardship.
Here we discuss five of the best credit control management practices to make sure your customers pay on time.
Contractual terms and conditions
Every business doing business with other companies should create clear terms and conditions as part of their contract with each other. This helps eliminate any potential for dispute over payment methods and timing. Items to specify in the terms and conditions should include:
Acceptable methods of payment.
Payment due dates.
Any penalties for late payments.
Any additional fees due.
Requirement for compliance with government legislation.
You may need to seek legal advice to ensure the business terms and conditions fully protect the interests of your company. Once they are complete, business owners simply ensure that their clients have signed the contract including the terms and conditions before any goods or services are provided.
Automate the invoicing process
Invoicing manually is time-consuming and opens up the possibility of human error and oversight. By using an automated invoicing system such as a cloud-based accounting software, you can make the whole process much easier and more accurate. Automating the invoicing process also lets you keep track of all payments and easily send out reminders when payments are overdue.
There is a variety of accounting software and apps you can use, so research the one that best suits your own business needs, ensuring it is HMRC compliant.
Track customer payment patterns
Tracking and regularly reviewing the payment patterns of your clients will help reduce the risk to your business. This is especially important if you are inclined to allow some clients to extend payment deadlines, or if you deal with many different clients over the course of a financial year. If one customer should request a delay on a payment, you will be able to quickly assess the viability of the extension.
This method also helps you identify any potential financial issues that a customer might cause in the future. That way, you can prepare in advance and determine the policy by which you will respond to a delayed or disputed payment.
Provide multiple payment options
Only accepting payment via one method can lead to problems with some clients, so it is a good idea to offer multiple options to them, if you can. The idea is to simply make it as easy as possible for your clients to pay you.
As well as more traditional small business payment options, there are other ways of getting paid. Customers who pay you the same amount each time can set up a standing order. Those who pay varying amounts each time can pay via a direct debit for business service.
Credit control management (CCM)
Every small business owner should create a credit control management system. Much of this will revolve around how to chase late payments, including the first payment reminder notice and subsequent actions should the first reminder prove fruitless. A basic template to start with is to send a reminder a week before payment is due, then one when a payment becomes overdue, and then a subsequent reminder every seven days that the payment remains unfulfilled.
It is a good idea to become acquainted with the most common reasons and excuses for late payments. This will help you navigate the awkward conversations with clients when they explain why their payments are late. Should the situation become apparent that they do not intend to pay, then you can use a reputable debt collection agency to take up the chase for you. Often simply using the debt collection agency’s name in payment letters can be enough.
We Can Help
If you’re interested in finding out more about small business payment options, or any other aspect of your business finances, then get in touch with financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.