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Credit Management Tips & Checklist

Editors Note: Expert content needs an expert content writer and Yorkshire Powerhouse is pleased to publish this business advice article on Debt Collection, kindly written by a real expert in his field – Gary Ainley from Expert Collections.

Please consider contacting Gary for any aspect of business growth – just click on the advert links above or below – and please mention Yorkshire Powerhouse if you do make contact.

There are a few common issues in credit management.  Knowing what these issues are can help to make sure you get paid in a timely fashion for your work.

Know Who You Are Dealing With

A common issue in credit management is knowing who you are actually dealing with. Without the full details and legal entity of the debtor you have supplied, you will always be on the back foot should they not pay.

This is particularly the case if you need to issue legal proceedings as it is a basic requirement of any court action that you specify on the claim form the debtor’s details. Do you know if the business you are dealing with is a limited company, sole trader or a partnership? If you can’t answer this question then we would always recommend finding this out before you start to trade with someone.

One simple piece of advice we would give is to get some kind of documentary evidence when you start trading with someone to show who is liable for the payment. You don’t need to go to great lengths getting customers to complete a time consuming credit application process. This can be a simple as an email containing your terms confirming the work that shows the legal entity of who is placing the order or getting confirmation by email should a verbal order be placed.

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Once legal proceedings are issued to recover the monies then the debtor provides a standard defence to the court requiring the claimant to provide the documentation in order to prove their case. In our view the debtor is doing this deliberately and exploiting the lack of paperwork in order to not pay for work.

Credit Checking

If your company is offered work from a new client, then you need to consider why the business has come to you in the first place.

Is it a prospect you have been speaking to over a period time that has finally agreed to pass you some work … or … have they approached you out of the blue? It could be the reason they are approaching you is because they have exhausted their existing credit lines with another supplier in the same industry!

If it is the case and they have existing CCJ’s, then it is highly likely they have approached you as a last resort and there is a real possibility that you will not get paid for the work.

Have a Credit Control Procedure in Place

One way you can look to avoid having write-off is to have robust credit control processes in place. Having a procedure whereby you are contacting a client before, during and after an invoice is due will minimise the chance of that invoice not being paid.

As part of that process you should have a policy to take positive action to pass the debt for collection to a third party debt collection agency once the invoice has been overdue for an unacceptable period of time. They key thing to putting such processes in place is that you actually stick to them.

Being Proactive with your Credit Management

If it is the case that the invoices do become overdue then you need to take proactive action.

If a client is struggling to make full payment then you might look to put a strict payment plan in place where the arrears are paid off weekly over a few instalments. If such an arrangement is put in place then you need to make sure it is adhered to as a company that is struggling to make payment will often be juggling cashflow and might prioritise other creditors who are taking more severe action in front of you.

Depending on your terms and conditions and any professional obligations you might also look at whether you can withhold any work that has been done until such as time as it is paid for.

We would also certainly recommend not taking on any new work from an existing client that is already severely overdue as this can often make the situation worse.

Late Payment

Unfortunately, for most small businesses, having to deal with the issue of late payment seems to be a frequent occurrence, regardless of the field.

Of course, you as a business need the payment … cash flow is crucial to the everyday running of any business, so prompt payment is vital. When a payment is delayed, there is a knock-on effect for everyone involved, and can result in third parties needing to get involved.

From the moment a payment is late, the debt can be charged as it is now overdue, and it is this that can be used to help collect your debts at no cost to you. For any transaction that is delayed, you are entitled to add interest to the amount owed. It is also possible to add statutory fixed costs to unpaid invoices, and the total you are permitted to charge is outlined in UK legislation and dependant on the amount of debt in the first place.

For most small businesses that owe money, they will already be aware that there will be a charge for making late payments, as this has been part of the legislation since 1998. Where possible, it makes sense to send a polite reminder to the business that they have an invoice outstanding, which should hopefully act as a prompt for payment before the debt builds. This shows the company that you aren’t unreasonable in business, but that you are aware of their late payment and it will not be left unresolved.

Using A Third Party to help with Debt Collection

If you do not receive a response or payment, this is the point when a third party debt collection service can assist. Collection matters can be analysed on a case by case basis, and help recover your debt. Look out for debt collection partners that can recover the debt at no cost to you, simply by using the late payment legislation for these situations.

Credit Management Checklist / Do’s and Don’t’s

  • Do make sure you know the legal entity of the business you are dealing with and who is responsible for payment.
  • Do have a contract and Terms and Conditions in place that confirm each parties responsibilities to each other.
  • Do credit check new clients.
  • Do continue to monitor existing clients to check they are paying promptly inside agreed credit limits.
  • Do get signed authorisation for each job and proof of delivery when an item is delivered.
  • Do have a credit control procedure in place.
  • Don’t put a payment deadline in place and fail to act if it is not kept to.
  • Do take proactive action when an account becomes overdue.
  • Don’t continue to supply a customer who is already overdue.
  • Do pass an account to a third party once your credit control procedure has been exhausted.

Having a solid set of credit management procedures will prevent a lot of debt issues but you need to follow them to the letter – if you’re struggling with debt collection then find a professional partner who can support your business.

Credit management guidance from Yorkshire Powerhouse

Now you’ve read our article on credit management – have you any more questions?

Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:

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