Credit control tips for small businesses
Late payments are still a big concern for many small businesses in the UK.
Research shows that a third of firms in the UK say that at least 20-30% of their sales ledger is constantly overdue. The impacts of this are considerable, particularly on cash-flow, which makes the day-to-day running of the business much more challenging.
The UK’s economic output is being squeezed by companies that fail to meet the payment terms of their suppliers, according to research among UK businesses, which has found the trading performance of small and medium-sized businesses in particular is being hampered by late payment and poor cash flow. Adding to this strain is the time lost in chasing customers’ late payment; with nearly 30 per cent of firms saying they spend four days or more a month pursuing outstanding invoices, which affects productivity, performance and growth prospects.
Credit control tips and guidance
Obtaining new customers is great for business, unless they fail to pay you. Ensuring that customers pay on time will make managing your business easier.
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.
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 or customers occur • ensure that your invoice
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.
Ian Bryan heads up the firm's Business Services Department, which is dedicated to helping the smaller business. Ian acts for a wide range of sole traders, partnerships, and limited companies providing accounting and tax advice and practical business solutions. For more details and advice, please contact Ian on [email protected] or 0114 266 7141.