Wednesday, 19 September 2018 - About DavidElliott | Rss

Credit control ideas

Establishing the reason why a customer isn’t making payment on time is important. If there’s a problem that you, the business owner, doesn’t know about and someone if ‘getting heavy’ with the customer, real damage to the relationship can be done. Complaints or disputes that delay payment should therefore be identified and addressed promptly

 

Assuming that queries have been resolved, a standard timetable for chasing customers should be in place - and you should stick to it. Here’s an example of such a timetable for customers with 30-day credit terms

 

  • 21 days: send a statement reminding the customer that payment due after 30 days
  • 30 days: send a reminder statement, restate the terms and point out that payment is overdue
  • 45 days: send another reminder
  • 50 days: put the customer ‘on stop’ until their account has been brought up to date
  • 60 days: send a final reminder
  • 90 days: assign the debt to a collection agency

 

Emailing statements and reminders is a good idea and I would suggest that you request an acknowledgement of receipt for emails sent. This way you’ll know for sure that your correspondence has been seen.

 

In between the procedural steps above, make phone calls to the customer and drop them more informal emails. Consider emailing contacts within the business that don’t have direct responsibility for making payments and try appealing to them (after all, it could be that they don’t know you haven’t been paid).

 

For persistently late payers you might want to consider setting up a meeting with them to discuss any problems that they might be having and how these can be overcome. Consider renegotiating terms with them. For example, would they be more likely to pay on time if you were to offer a discount for quicker payment?

 

Once a debt is overdue by more than 60 days (in the timetable above this would be 90 days after the invoice date), you should consider involving a debt collection agency. Their cost is typically between 1% and 5% of the debt outstanding. Larger companies will automatically pass debts on to an agency and it’s important that, as a smaller business, you do the same. Don’t see it as a sign of weakness but as a standard part of your credit control process. Try this link and you’ll be able to choose from the drop-down list either consumer debt collection agencies or those that specialise in business-to-business debts. You can also search by geographical region.

 

You should bear in mind that, under the Late Payment of Commercial Debts (Interest) Act 1998, a business can charge interest to its debtors on late payments. The current rate is 8.5% and, in addition to the interest charge, there’s a compensation entitlement. The link here is to the Better Payment Practice Group website, from which you will also be able to calculate interest on overdue debts.

 

The Better Payment Practice Group website also has some sample letters that you can use to send out to customers (you could copy and paste these into Word documents and save them as part of your standard credit control procedure, tying in with the above timetable).

 

Share this article