Cash is what keeps the wheels of business turning and effective credit control is what keeps those wheels turning smoothly. With that in mind, here are some simple tips about how to manage credit control effectively.
Effective credit control starts with effective systems and processes
Solopreneurs and microbusinesses may be able to get away with using spreadsheets, but even they would probably find it easier to use some decent software and any business which has grown beyond the “seedling” stage almost certainly needs to invest in an appropriate software programme. What “appropriate” means in practice will depend on the business and its preferences, some companies might like to use customer relationship management software and treat invoicing as part of the overall customer-retention process. Others might prefer just to use basic billing software and treat invoicing purely as a payment process and hence owned (usually) by the finance department. In either case, if you want bills to be paid then you need to ensure that they are actually sent in the first place and investing in a decent software programme is usually a good place to start. Your credit control will be even more effective if you make a point of sending invoices out promptly. If you are providing goods, then send out the invoice at the same time as the goods (although not necessarily by the same means) or, if you require a signature on delivery), wait until you have proof of delivery and then send your invoice. If you’re providing services, you might want to consider dividing them into “milestones” and billing them a bit at a time, rather than waiting until the entire project is complete.
Make sure your invoices are both completely accurate and fully complete
In addition to making sure your invoices are sent (to the right person or department), you need to make sure that they are accurate and complete. In other words, the average person should be able to glance at them and immediately see what they have to pay and why and then be able to reconcile this with their internal records. Be aware that paying your invoice will almost certainly be just one of many tasks somebody has to complete and they may well be doing their best to speed along their work more or less on autopilot, so they are unlikely to be able or willing to spend time trying to figure out anything which looks like an anomaly, even if it is actually explained somewhere in the invoice. Instead, they will probably either fire off an email asking for an explanation and then put the invoice to the back of their to-do list or, worse, make a note to email asking for an explanation and put the note at the back of their to-do list, along with the invoice. Because of this, the golden rule of invoicing is “keep it simple”. Invoices are not marketing material, they are not the place to advertise your other goods and services. They are all about the facts, just the facts, presented so clearly that even the busiest person can grasp them without the need for any active thought.
Set a clock ticking
The official payment terms will (hopefully) have been set as part of the contract (if this is not being done then you need to adjust your process). You cannot force the other party to pay before the bill is due, but you can certainly offer inducements for them to do so. A discount on the bill is the standard inducement (and can work very well), however, there are other options such as offering to enter the company into a draw for a decent prize. A belt-and-braces approach might be to set payment terms of 30 days, offer a discount for payment within the first 7 days and offer entry into a prize draw for payment within the first 14 days. That way even if companies miss the first “unofficial” deadline, they may still be induced to try to make the second.