Almost 30% (of the 80%) of all new businesses that fail within their first year say that their reason for going bust was entirely down to their finances. Well-planned credit control practices are imperative to ensuring business continuity, and ensuring you have these in place at the very start will certainly ensure you don’t get into more trouble than you can handle.
1. Get Credit Ratings - you can do this online, it’s fast, it’s easy and it can cost as little as £10. Even the most detailed reports will cost less than £50, which is a mere pittance when compared with the significant loss of funds with a high value order.
2. Check, Check and Check Again - When you get references ensure that you confirm the potential customers trading name and contact details. Find out how long the referee has dealt with the customer, how they found them and if they paid on time.
3. Have an Upper Credit Limit - Never allow yourself to be persuaded or bullied into giving more, set a credit limit for each customer based on references and your own findings and stick to this. The golden rule is to never give more credit than you’re prepared to risk.
4. Have Contracts - Each customer should be given, understand and sign an individual contract - this is to protect yourself if any issues come up later on down the line. A typical sales contract should include terms such as: ‘The goods are owned by yourself until they are paid for’, ‘Returns of damaged stock will not be accepted’, and so on.
5. Offer Discounts - Provide incentives for customers to pay up quickly, such as a percentage off the overall credit agreement if settled within a certain time period.
6. Claim Interest on Late Payments - By law you are entitled to apply an interest charge at the Bank of England base rate plus an additional 8%, worked out on a day-to-day basis for every day the payment is left overdue.
7. Never Grant Additional Credit - If someone has exceeded his or her credit limit then it’s important to never stretch this, make sure that the excess is paid before additional credit is even considered.
8. Make Regular Checks and Recordings - Check your total outstanding credit monthly and record your findings, this provides a handy snapshot for now as well as a comparison for the future.
9. Have a System for Chasing Debts - Contact late payers to discover their reasons and record your findings. Persist with calls, such as trying at different times of day or days of the week. It’s likely you will hear many excuses but important you have the tactics to deal with them. For example, the age old ‘the cheques in the post’, ask for the cheque number. Don’t be afraid to hire in a debt-collecting agency if needed, remember that you’re a business and not a charity.
Of course it doesn’t do to be too heavy handed, but remember that you’re protecting your business, when it seems “too harsh” to put someone on stop whilst you collect monies owing.