Tag: credit management

Credit management – A sale is a gift until it’s paid for (part 1)

Many credit rating agencies can supply marketing lists pre-screened to contain only prospects with a decent credit rating. So, there really is no excuse to sell to high risk prospects in the first place.

Successful credit management should be front and centre for all businesses, irrespective of the wider economic circumstances.

Getting paid on time remains one of the biggest and most frustrating problems for business owners and these blogs set out a comprehensive framework for credit management to help you lower your risk and put more money in your bank account.

This first one looks at how to establish a credit policy and why it’s better to prevent than to have to cure credit management problems.

Establish a credit management policy for your business

Your credit management policy has to apply across the entire business, just as a smoking policy or a pension policy would. All areas of your business need to buy in to it and apply it otherwise it simply won’t work.

The policy should cover areas such as:

  • Standard credit terms as part of your terms of trade
  • Credit vetting prospects and existing clients
  • Pricing
  • Prompt raising of invoices
  • Credit insurance
  • Early payment discounts, interest on late payments
  • Putting slow payers on STOP
  • Collection procedures and targets
  • Legal recourse

It’s sensible to review the policy from time to time but more importantly it’s vital to ensure that your policy is being applied consistently across your prospects and customer base.

Include your policy on your website.

 Prevention is better than cure

There are several steps that can be taken to reduce the credit risk before a sale is made.

Firstly, consider checking the credit worthiness of your prospects before you go too far through the sale process.

There are several credit rating agencies in the UK (Creditsafe and Experian are two examples) and they will supply you with online credit reports and ratings which will help you to determine whether you want to proceed with a given prospect.

Many credit rating agencies can supply marketing lists pre-screened to contain only prospects with a decent credit rating. So, there really is no excuse to sell to high risk prospects in the first place.

Moving forward through the sales cycle, you can subscribe to online monitoring services where the credit agency will notify you of changes to your clients’ credit ratings.

Agreement in writing

It pays to have clear and unambiguous terms and conditions and to get these agreed in writing.

It almost goes without saying that prices and payment terms should be set out somewhere in the documentation, but sometimes these are dealt with separately, which is an opportunity to lose sight of the payment terms, so be careful.

In a perfect world neither you nor your customer will ever have to blow the dust off the T&Cs, subject to periodic review, but it’s important to know they are signed and on file if you need them.

Strangely, this is an area that businesses can be lax on and so it’s important that the chief executive leads from the front and ensures T&Cs are always in place before goods or services are delivered.

A useful online resource for T&Cs is NetLawMan. You can start with one of their contracts and adapt it to your own business before running it by your lawyer if you need to.

Hopefully you now have some thoughts about where to start and where you can go for help. If you’d like some one-to-one advice on credit control and management, please give us a call at Blue Dot Consulting on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael

Related links:

Profitability and cashflow

Get paid quicker – 5 tips to improve your sales invoices

How to build a simple cashflow model and keep it running

She’s a bulldozer when it comes to credit control and getting paid

I’m sure there are awards ceremonies for credit control and getting paid but if they don’t present the Golden Bulldozer award then something is badly wrong in the world of credit management.

I’m sure there are awards ceremonies for credit control and getting paid but if they don’t present the Golden Bulldozer award then something is badly wrong in the world of credit management.

The changing face of credit control

Over the years, working practices and technology have changed but the basic need for good credit control has not.

Cash is king and businesses fail because they run out of money – so staying on top of credit control and getting paid is not optional, it’s fundamental.

From a tech perspective, most business have bookkeeping software which is far more accessible and powerful than it used to be.

Your bookkeeping software will contain some credit control tools such as:

  • reports of debtors and how old they are
  • a direct feed from your bank account so you can see money coming in each day
  • automated reminders being sent by email to late payers
  • statements of unpaid invoices that can be sent by email
  • there are also credit management apps that can be integrated into your software

Learn what tools are available to your business and use them.

Direct debit is your new best friend

Frequent readers of this blog will know that we mention GoCardless quite often.

GoCardless is a direct debit service that links in to your bookkeeping software and collects invoice payments from customers automatically by direct debit using whatever payment terms you and your customer agree.

The more customers you can sign up to a direct debit service the less of a headache credit control will be.

It’s also an early warning sign – if a new customer won’t sign up to direct debit then perhaps it’s because they are a bad payer you shouldn’t sell to them.

Get the basics right

Credit control is so much easier if you get the basics right. Such as:

  • have a contract or standard terms and conditions agreed in writing at the outset
  • send invoices, by email, punctually, to the correct contacts, making sure they are for the correct products or services, the agreed price and agreed payment terms
  • put your bank account details on your invoices, customer statements and any other credit control documents
  • send the PDF not a link – why make it more difficult for your customer to access your invoice?
  • if you invoice a customer the same amount each month then set up an automated invoice in your bookkeeping software

Get on the phone

This is where the bulldozer comment came in.

It was a huge compliment paid by the finance manager about her colleague who is responsible for credit control in their business.

There is no substitute for polite but tenacious phone calls to get customers to pay.

And support your credit control team by involving your sales and account management people in credit control. If you only pay commission when sales invoices have been paid then this tends to motivate sales people to help with credit control.

And if everything you’ve tried has failed then stop providing products and services to non-payers and consider legal action.

Credit control and getting paid

Credit control needs to be front and centre in many businesses.

There’s a cost to doing credit control but the costs of not doing it can be far greater.

Be organised, used the technology available and be tenacious. And above all:

Be more bulldozer!

Michael – @bluedotmichael

Related links:

Get paid quicker – 5 ways to avoid bad credit risks

Get paid quicker – 5 tips to improve your sales invoices

Getting paid on time – your company is NOT a source of alternative finance!

© Blue Dot Consulting Limited

Get paid quicker – 5 ways to avoid bad credit risks

The collection side of credit control is difficult enough so identifying bad payer problems before you have even made a sale can save you time and money.

These credit control tips help you reduce the risk of selling to bad payers in the first place.

The collection side of credit control is difficult enough so identifying bad payer problems before you have even made a sale can save you time and money.

1. Get paid upfront.

Never any harm in stating the obvious, and it’s so easily overlooked. If you don’t want a credit control problem simply ask to be paid upfront.

Once you have the money, don’t spend it all at once because you have to pay for providing the goods or services you’ve sold.

2. Use direct debit

Ask all of your customers to sign up to pay by direct debit using a service such as GoCardless.

You will get paid according to your agreed credit terms, save a lot of time and improve your cashflow.

And if a prospect refuses to sign up to direct debit you should be very wary of doing business with them.

3. Buy prospect lists with credit ratings

When you buy a marketing list, why not buy it from a credit ratings agency and ask for the list to include only companies that have a decent credit rating. You will get a smaller list but at least you know the prospects should be creditworthy.

4. Go with your gut

Often during the sales process it’s possible to get a gut feel as to whether you think you’ll have trouble being paid by the potential customer. There is no science to this, experience counts for everything.

Don’t ignore get feel. You’ve only yourself to blame if it turns out you were right!

5.  Agree in writing your payment terms

Before you do any work or supply any goods, agree the contract in writing first and make very sure that your contract included clear payment terms. It’s too late to introduce payment terms later on and if at the outset you experience some resistance to agreeing payment terms then you know there is trouble ahead and you might choose to walk away.

This blog looks at the start of the credit management process – before a sale has even been made. Keep an eye out for the rest of the series that explores tools and techniques further along the credit management process.

If you would like to discuss your credit management requirements, call me on 020 7125 0270.

Michael – @bluedotmichael

Related links:

Cashflow

She’s a bulldozer when it comes to credit control

Get paid quicker – 5 tips to improve your sales invoices

A gory cashflow model is a useful cashflow model – the bloodier the better

You probably can’t rely on your bank to save the day so it’s down to you

At a monthly review with an MD recently we were working on managing cashflow and thinking perhaps the company accountant was being too optimistic.

Essentially, things could be worse!

And if they were going to turn out worse than expected then what did that mean for the business and what could be done to manage the situation?

Managing cashflow – who needs to?

Businesses tend to fall into two categories:

  1. Those that need cashflow models
  2. Those that don’t (usually because they’re well funded and cash just isn’t a problem)

If you’re in category 1 (most businesses!) then you need your cashflow model to be realistic otherwise it simply isn’t useful for you.

The bloodier and gorier it is, with all the realistically possible crunch points included, the better.

Why?

Because it forces you to deal with the problems and will help you to navigate turbulent times successfully.

What does a cashflow model look like?

Essentially it’s your bank statement looking backwards and forwards.

Month by month you summarise receipts and payments and the difference between the two is the net cash flow for the month.

Add the net cash flow for the month to the balance brought forward at the end of last month and you have the balance carried forward to next month.

When you create your cashflow model – go backwards for six months before you start to forecast the next six and your model will be much more realistic.

Keep on adding in the actual cash flows for each month as you move forward so you are always building your forecast on top of what actually happened.

Example of a cashflow model

Business decisions drive cashflow

You probably can’t rely on your bank to save the day so it’s down to you, your team and your business to:

Running a business is certainly not easy but if a realistic cashflow model should be front and centre and isn’t then get on top of cashflow before cashflow gets on top of you.

Michael

Related links:

Cashflow

Get paid quicker – 5 tips to improve your sales invoices

Profit is your first cost

Is my accounting any good?

Towards the end of this burst of activity the accounting processes should be working on “autopilot” and everyone can concentrate again on delivering the profit and achieving growth potential of the business.

Accounting is so important to your business that you literally can’t afford to be getting it wrong, particularly as you grow. But if you’re not an accountant, how would you know if your accounting is right?

The focus here is on the accounting that’s going on every day, week, month during your financial year. If this is accurate and up to date then year-end accounts and tax planning should be as easy as falling off a log (so make sure your accountant is not charging silly money when you’ve done most of the work!).

But if the day-to-day accounting work is not being done correctly you can be in trouble and not know about it until it’s too late.

Symptoms of your accounting work being done badly might include:

  • late / no / incorrect management accounts
  • persistent cashflow problems
  • PAYE / VAT not being paid
  • suppliers forever hassling to be paid
  • customers taking ages to pay and not being chased

Of course, these could also be the symptoms of a badly run business with a finance team that’s on a hiding to nothing!

But let’s assume that yours is a well-run, profitable business with good growth prospects. If you’re seeing these symptoms then it’s likely that you’re being let down by whoever is doing your accounting work.

And that is something you need to change – fast!

What does the world of better accounting look like?

When we work with MDs to improve the quality of their business accounting it’s amazing how much anxiety and stress disappears pretty quickly. Particularly by focusing on improving cashflow and gross profit.

Often this type of work involves a short but intensive period of:

  • bringing the bookkeeping and management accounts right up to date
  • getting credit management working right through the business
  • looking at “pricing for profit“
  • cost control
  • improving processes and systems

Towards the end of this burst of activity the accounting processes should be working on “autopilot” and everyone can concentrate again on delivering the profit and achieving growth potential of the business.

Sounds like a good place to be?

Thought so.

Michael – @bluedotmichael

Related links:

Bookkeeping for your business

Management accounts – are yours fit for purpose?

Set up an accounts calendar

Clients – are they profitable and will I be paid in good time?

There’s no point having a client contract which either doesn’t make money or doesn’t pay you in good time. This doesn’t just apply to potential new business deals; it applies across your entire client base.

There is no point having a client who either doesn’t make you money or pays you too slowly. This advice applies across your entire client base, not just to the next new business deal.

Continue reading “Clients – are they profitable and will I be paid in good time?”

Credit management – A sale is a gift until it’s paid for (part 2)

Every business should be compelled to sell to a large, multinational organisation every now and then just to be reminded of the pain you have to go through sometimes to get paid.

If your business model doesn’t allow you to be paid upfront…….…..read on Continue reading “Credit management – A sale is a gift until it’s paid for (part 2)”