A small business guide to credit control

In a post from February’s newsletter, Peter Swift wrote: “Turnover is vanity. Profit is sanity. Cash is reality.” The last point, cash is reality, is why credit control is important to you—especially if you have a small or fast-growing business and cash is crucial to your day-to-day operations. Managing cash flow If your business is paying out before you bring in payments, you’re heading for cash flow difficulties—if you’re not there already. To maintain successful cash flows, you need to understand the relationship between the timings of your outgoings in relation to your expectations of your incoming cash. Think about when you buy goods, materials and when you pay staff, and then compare it to when you’re asking your customers to pay for your services and products. Proper invoicing Once you’ve done that, check you have all the basic parts of your sales process in place. Are you sending invoices? How soon after orders do you send them? Are they going to the right address? Do you state your payment terms on the invoice? Are your bank details on the invoice? The people you do business with will usually accept a timely and complete invoice without fuss and payment will follow. Purchase orders Some of your customers will have extra layers of complexity in their orders and invoices; purchase orders, in particular. Always check when receiving an order whether the buyer needs a purchase order number. The last thing you need is to work backwards to find it at the point you were hoping for payment—it will impact your cash flow. Don’t be afraid to ask your clients for payment when it’s due. You might feel uncomfortable doing it, even you’ve given your goods and services in advance of payment. Chasing payment Send an email asking about your invoices before they’re due. It’ll help you avoid delays when they’re payable and flush out any problems before they happen. After that, make sure you demand what is rightfully yours. It’s far less embarrassing to ask for payment than it is to ask for extra credit when you can’t pay your suppliers. Sometimes, you need to take things further, which might mean using debt recovery agents and solicitors. But that’s for another blog. Carl Lancaster is Group Credit Manager for Peninsula