Common Credit Management Tactics for Business Success

There is no perfect way to go about credit management. Some clients will respond to strategies that others won’t and some will be set on not paying you, regardless of how you approach them. The best thing to do is prepare multiple strategies for any event.

This will help you to reduce the effect of late payment on your cash flow and increases the chance of getting paid.

Below are the most common credit management tactics that companies use in the UK.

Reminding your clients

Giving your clients a phone call, sending an email or letter is a great way to remind them that they need to pay you.
There are multiple ways you can contact them.
The best times to contact your clients are;
– 14 days after sending the invoice to check it has been received and there are no discrepancies.
and
– As soon as the payment becomes overdue, they would have confirmed in the previous call that they understand the payment terms. Therefore there may be a problem with payment.

Putting Services on Hold

Although extreme, by withholding your services you are forcing your client’s hand.
You may run the risk of losing a client, but a client that does not pay is not valuable to your business anyway. This will either mean they pay you, or, you can free up time for a new paying customer.
Refusing to trade with a client is normally necessary for those with a track record of late payment.

Credit Reporting

This is a great tool to assess if you should provide a customer with credit.
Credit checking a customer or supplier will help you to decide whether or not to trade with them, whether an upfront deposit is required and what length of terms to supply.

Suspending Credit Facilities

If a customer is known to pay late or has a poor credit score, you may decide to refuse extending credit terms. This way, you remove the risk of them not paying.

Legal Proceedings

County Court Judgements are available to businesses wishing for assistance in a strong approach. Often the prospect of court alone will be enough to encourage the debtor to pay. This can be an expensive and time-consuming process if you do it yourself.

Face to Face

It is easy to ignore or avoid an email, letter or phone call.
Sometimes the best way to request payment is to visit your debtor and explain to them how imperative their cooperation is for your business.

Charging Interest

You are entitled to charge a late payment fee and statutory late payment interest if your client’s payment is overdue.
This charge may compensate you for the effects on your company’s cash flow and any costs incurred by hiring a debt collection agency in the process.

Use our online Late Payment Calculator to work out how much you can legally add to the bill.

Written Credit Policy

This is a set of rules to dictate a consistent procedure to staff when trading on credit terms.
Having a written policy will ensure that your team goes about credit management in a structured and effective way.

Early Settlement Discounts

As an incentive to improve your chances of being paid on time or early, you can offer clients a discount for early settlement of an invoice.
It can be more beneficial to receive less money if it means the client will take advantage of the offer and you will be paid sooner.

Invoice finance

Trading on credit terms means there will always be a break in cashflow between providing services and receiving payment. Invoice financing is when you sell an invoice to a finance company. They will pay up to 90% of the value straight away and you can immediately access that amount.
You can use funds that the financier provides and then pay them off when your client pays you.

Credit Insurance

Late payments will significantly affect your cash flow, so it can be beneficial to protect this by obtaining credit insurance.
Credit insurance can safeguard your business from irrecoverable debt and late payments.
If a debtor enters insolvency proceedings, the insurance company will make sure you are paid.

Outsourcing

Outsourcing can give you back valuable time to run your business. Relying on someone’s expertise minimises the margin for human error of a less experienced individual and could be a great alternative if your company lacks the resources or funds to employ an in-house expert full time. Here is more information about the benefits of outsourcing your credit control.