Skip to content

Credit Control

Credit Control

Vanessa Cresswell

Vanessa Cresswell

Click edit button to change this text. Lorem ipsum dolor sit amet consectetur adipiscing elit dolor

Obtaining new customers is great for business, unless they fail to pay you. If you fail to check that the customer can support the amount of credit you are granting, then commencing legal action when they do not pay can be a long, drawn out and potentially costly process.

If payment from the customer is not obtained and the goods or services have been provided, your cash flow is likely to be under pressure. Ensuring that customers pay on time will make managing your business easier.

If you fail to pay your suppliers because you have not been paid by your customer then you could also be damaging their business as well. This is not only bad business practice but could be regarded as corporate social irresponsibility. Treat your suppliers as you want your customers to treat you.

Factors to consider

The first thing you should do is get to know your customer. This should start before you take on a new customer and before you give them any credit. The bare minimum of what you should know is:

  • the exact name of the customer and the trading address (consider using Companies House Webcheck service)
  • their type of business structure, e.g. are they a sole trader, a partnership or a limited company?
  • names and personal addresses of the proprietors if their structure is unincorporated (consider verifying letter headed paper to support this information)
  • contact other suppliers to obtain references
  • their credit rating through a credit agency.

Before you provide goods or services to any customer make sure you address the following:

  • discuss and agree payment terms with the customer before accepting the order
  • agree the terms in writing
  • review any documentation from the customer where they try to change the agreed payment terms
  • negotiate and agree payment terms with suppliers before accepting the order
  • if there is a gap between customer and supplier payment terms, consider whether finance is available to bridge the gap (this will require an understanding of your working capital management)
  • produce a cash flow forecast covering all expected income and expenses
  • have a standard policy in place to ensure that payment terms cannot be altered without appropriate authorisation
  • ensure that you have the right to apply late payment and interest charges on invoices.

After you have provided goods or services to a customer ensure that you:

  • raise invoices promptly
  • raise invoices accurately to ensure all items are included at the quoted prices
  • include a reference number for the order and then quote this if any dispute arises
  • have everything the customer requires on the invoice
  • have a process for chasing invoices
  • have a process for dealing with disputes
  • keep a log of disputes to ascertain whether similar disputes for customers occur
  • ensure that your invoices are fully compliant with HMRC for VAT purposes.

Consider your suppliers – treat them as you would like to be treated

Remember that not paying your suppliers on time is a bad business habit and it may result in a drop in your credit rating. You should:

  • ensure you advise your suppliers of any disputes as soon as they occur
  • pay on time by ensuring that your creditors’ ledger is accurately aged; and
  • keep your suppliers up to date with any issues you have with paying on time.

Some businesses unfortunately go ‘bad’ so you may wish to consider obtaining credit insurance where the business:

  • would not be able to function if key customers went insolvent
  • does not have the controls in place to ascertain whether a customer is likely to go insolvent
  • is struggling to obtain information on prospective customers
  • needs to improve credit management
  • is considering a new market venture.

Businesses should consider obtaining factoring and financing options when:

  • insufficient cash reserves are available to pay suppliers on time
  • the business needs to grow
  • the level of short term finance (including any overdraft facility) is insufficient
  • staff do not have the right level of credit management skills.

How we can help

If you are struggling with your cash flow in these difficult times then we would be happy to discuss this further with you. Please contact us for more detailed advice.

Share this with your friends

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn

More to explore

Venture Capital Trusts

Venture Capital Trusts (VCTs) are complementary to the Enterprise Investment Scheme (EIS), in that both are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies affected by the equity gap. While the EIS requires an investment to be made directly into the shares of the company, VCTs operate by indirect investment through a mediated fund.

Read More »

VAT Flat Rate Scheme

The flat rate scheme for small businesses was introduced to reduce the administrative burden imposed when operating VAT. Under the scheme a set percentage is applied to the turnover of the business as a one-off calculation instead of having to identify and record the VAT on each sale and purchase you make.

Read More »

VAT – Seven Key Points for the Smaller Business

This factsheet focuses on VAT matters of relevance to the smaller business. A primary aim is to highlight common risk areas as a better understanding can contribute to a reduction of errors and help to minimise penalties. Another key ingredient in achieving that aim is good record keeping, otherwise there is an increased risk that the VAT return could be prepared on the basis of incomplete or incorrect information.

Read More »

VAT – Cash Accounting

Cash accounting enables a business to account for and pay VAT on the basis of cash received and paid rather than on the basis of invoices issued and received.

Read More »

VAT – Bad Debt Relief

It is quite possible within the VAT system for a business to be in the position of having to pay over VAT to HMRC while not having received payment from their customer. Bad debt relief allows businesses, that have made supplies on which they have accounted for and paid VAT but for which they have not received payment, to claim a refund of the VAT by reference to the outstanding amount.

Read More »

VAT

VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them. The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules. We highlight below some of the areas that you need to consider.

Read More »