Credit Control. Getting Paid On-Time, Every Time!

Credit control is one of the biggest problems for any business and especially freelancers and small businesses. Many business dont like asking for money and a lot of people freely accept terrible and unworkable payment terms.

This can affect many business models such as consultancies or outsourced IT services. Because it is not always possible to commit to a fixed price or to request full payment ahead of undertaking the work. This creates a cashflow and client risk that we may not get paid. But for some small business owners, it can just be really nerve wrecking asking for payment.

However, when done well, ‘credit control’ stops being a separate finance process within a business. It becomes just a core part of a business. There are a number of ways to ensure that work completed is paid for in a timely manner.

On the recent addition of the Business Heroes by Richard Wraith of WESH.UK. Richard and I discussed the topic of getting paid by customers on time every time.

What is ‘credit control’ and why do we need to be ‘credit controllers’?

Firstly, the boring definition of credit control:

Credit control is a process of control within a business that prevents it from becoming illiquid due to improper and un-coordinated issues of credit to customers

Simply put if we are too nice to people and let them pay us for our work whenever of if ever they want, then we won’t be able to pay our own bills, which could cause our businesses to fail.

And so on to the roll of the ‘credit controller’ – they are responsible for the managing of the debts of the business. They make sure that customers are paying on time and the books and records of the business are correct, they also chase up people who haven’t paid on time.

The role of credit controller and managing the credit control process need to be high in your priority list. Any business owner ignoring this may wake up one morning without the means to pay your bills.

So, where is best to start with good credit control?

Well good credit controls should really start with being confident in our skills and the value we bring to the situation i.e. how your skills will resolve the problem for the client. This confidence and knowing we have the right skills, are also key to ensuring that we are quoting the right amount for our services and we are setting out our expectations for when we want to be paid by.

I know this sounds really straightforward, and I know from my personal experience it can be harder said than done. Particularly when talking about how much things are likely to cost, we are promoting our skills and knowledge. These are intangible and very subjective making it important to be clear on cost.

But remember we didn’t start our businesses without having first honed our skills. If we don’t talk about money at the start, we create a big risk that the client cannot afford our work. Therefore, if we are clear on what we are going to deliver (and not deliver) we can also be clearer on the price. This reduces surprises and increases the chances of clients paying on time.

Things which help control customer credit

During the show, Richard and I covered a number of things which we felt help control customer credit. Amongst these were:

1. Being consistent on when invoices are issued.
2. Having standardised terms which clearly outline by when payments should be made and in what form
3. Have a way of monitoring aged breaks (i.e. those who haven’t paid within the expected period)
4. Only chase when it is appropriate to do so, chasing for payment ahead of the due date is not just annoying but it will damage your reputation
5. Within your standardised terms and conditions be clear about what actions will be taken if payment isn’t received in a timely manner

Also, we talked about the importance of credit control when providing services to larger organisations such as local government. Larger organisations usually have very well defined and controlled processes for paying invoices. Before entering into any agreement we must understand their payment processes e.g. payment cut-off dates. Because they may not make payments in time with your standard terms. You may need to advise them on how you expect to be paid if it is appropriate to do so.

How to encourage being paid on time

To ensure clients pay us on time, make it as easy as possible for them to do so. For example, if it isn’t obvious how much they need to pay you or how – there will be delays. Because ‘friction’ in the customer journey makes it harder for us to do simple things.

Also, look at what works in other industries and what could work or not work in your industry. For example, parking fines – they don’t give a discount, but they are very clear on the terms of payment. If paid within a set period of time, then a cheaper rate will apply, or the full amount (or more) must be paid.

Good credit control means being consistent and make sure that you keep on top of payments failing due.

Robin said about his appearance on this weeks show:

When Richard Wraith from WESH UK Web Hosting asked me to join him again on the hot seat to discuss getting paid, I was worried. I thought he may be about to charge me for the times I’ve been on the Business Heroes Show! But thankfully, he was actually asking if I had any hints or tips which may help business owners to improve their credit control and reduce (ideally eliminate) the number of late paying or non-paying customers.

We certainly covered a lot of ground on the Business Heroes Show on Wednesday 4^th March 2020. Some of the big takeaways you will see on the show are ‘talk about money at the start. Know your worth and be proud of it’ and ‘don’t be afraid to ask for a down payment in advance’. If the client isn’t happy to do this, then they may not be the right client for you or there may be some red flags to watch out for.

You can also see Robin Walkers other show appearances here: Business Processes and Customer Reviews