What is credit control?  

Keeli MacMillan

Content Marketing Executive

February 9, 2024

So, what do we mean by credit control?

Well, if you run a business such as a B2B company for example, you will know that when you sell a product or provide a service to your customers, they more often than not pay you later by invoice.

Essentially credit control is about making sure the money you earn gets back to you as quickly and smoothly as possible. Simple steps are put into place to ensure payments are made on time and as smoothly as possible.

By having a solid credit control process, you can not only safeguard your money and maintain financial stability you can also build great customer relationships through openness and flexibility.

Why credit control matters

Before we get into how to create a credit control process for your business, you might be wondering why it’s important to have one at all? Well, there are three main benefits to credit control;

  • Cash flow control: a credit control process helps to ensure that your cash flow remains consistent. Understanding your business finances not only means you can cover day to day costs, but also allows you to plan for future growth.
  • Reducing bad debts: By assessing your customers creditworthiness in advance you can reduce the risk of non payments and bad debt. This can be by assessing a customer’s likelihood to pay and what time frames can be expected between a product sold or service provided and the invoice being paid.
  • Building great customer relationships: Having a clearly defined process for both you and your customers means you both know where you stand. It allows you to chase your payments promptly and professionally and strengthen those customer relationships.

Without a strong credit control process, you put your business at financial risk and cash flow problems.

It doesn’t take much to ensure that you keep your business safe.

Let’s look at the steps you can take to ensure your company finances stay healthy.

5 Steps to creating a credit control process

  1. Assessing customer creditworthiness –The first place to start is assessing whether your customers are reliable payers. Taking on a new client without checking for potential risks could cost you later on. The best way to do this is by checking their credit history. This information will allow you to decide on the amount of credit you extend or the payment terms you offer. If they have a history of paying on time, then there is a lower risk of problems arising. However, if you do find a potential customer has a less favourable history that doesn’t mean you have to discount them entirely. You can consider adjusting your offer to better suit their situation, such as asking for a deposit before starting work.
  2. Clear payment terms – Being clear with your payment expectations from the start is a great way to prevent potential payment problems arising. Outlining late payment fees and penalty charges helps the customer understand what will happen should payment not be made.
  3. Prompt invoicing – Being prompt with your invoicing helps send a message that you wish for prompt payment in return.
  4. Regular ledger reviews – Make sure you set aside time for regular sales ledger reviews. By undertaking regular checks you remain on top of missed payments and potential mounting debts.
  5. Robust payment collection – Late payments unfortunately can’t always be avoided. Having processes in place for chasing and collecting unpaid invoices is an absolute must for managing these situations.

If you would like to learn more about how to successfully chase unpaid invoices then visit our blog 6 steps to chase unpaid invoices

When you are running a busy business, it can seem like a less than exciting job to be creating and adhering to a strict set of processes. But, credit control is a vitally important strategy to sustaining your businesses’ financial health. By taking the above steps you can save yourself the stress of avoidable financial losses and minimise overall financial risk.

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