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

Data Security – Cloud and Outsourcing

Many companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices or in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. We have a related factsheet which covers the conventional data security considerations.

Read More »

Data Security – Backup

Many companies are now completely reliant on the data stored on their network servers, PCs, laptops, mobile devices and in the cloud. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the issues to consider when reviewing the security of your computer systems and data.

Read More »

Data Security – Access

Many businesses are now completely reliant on the data stored on their Network Servers, PCs, laptops, mobile devices and cloud service providers or internet service providers. Some of this data is likely to contain either personal information and/or confidential company information. Here we look at some of the issues to consider when reviewing the security of your computer systems with respect to access controls, and to ensure compliance with Principle 7 of the Data Protection Act.

Read More »

Pensions – Tax Treatment on Death

Alongside the changes from April 2015 to the access of pension funds, significant changes were made to the tax treatment of pension funds on death. This factsheet summarises the rules which may allow a pension fund to pass free of all taxes on the estate of the deceased and free of all taxes on the beneficiaries of the pension fund.

Read More »

Pensions – Tax Reliefs

There are two broad types of pension schemes from which an individual may eventually be in receipt of a pension: workplace pension schemes and personal pension schemes. A workplace pension scheme may either be a defined benefit scheme or a money purchase scheme.

Read More »

Pensions – Automatic Enrolment

Automatic enrolment places duties on employers to automatically enrol ‘workers’ into a work based pension scheme. The main duties are assessing the types of workers in the business, providing a qualifying automatic enrolment pension scheme for the relevant workers, writing to most of their workers explaining what automatic enrolment into a workplace pension means for them, automatically enrolling all ‘eligible jobholders’ into the scheme and paying employer contributions and completing the declaration of compliance and keeping records.

Read More »