Payment culture can come as a shock to some businesses. SMEs and those businesses operating in areas where cash-flow issues are endemic, such as recruitment, may suffer if they do not have a sound credit control process in place.
The Forum of Private Business’ research indicates that those businesses with robust processes in place are much less likely to fall victim to late payment issues than those with more informal credit control arrangements.
Doing the Research
“Effective credit control processes are streamlined,” Wendy explains, “and one key way of streamlining them is to research your customers before offering them credit.”
Wendy points out, “As an effective credit control tactic, this is often overlooked, or ignored because of the cost of producing credit reports. However, this kind of preparation is important.”
“Credit control is preventative as much as it is about recovering money, and this means starting out as you mean to go on, and knowing as much about your customers as you can in advance of any transaction”
Wendy advises to check online:
- on your customer’s own website, to find out more about them
- by using search engines as a useful way of seeing what sort of reputation they have built up
- at Companies House to see if they are a limited company
Checking the Details
“You should be able to ascertain whether the company actually exists, and, if so, what its registration number is,” Wendy says. “You want to know the year they started trading, because if they are a start-up this might affect your decision.”
A check should also reveal any existing outstanding insolvency proceedings. In addition, a credit report provides valuable information on financial, credit and trading history, and a credit rating and limit.
“You should use this to shape your own terms and conditions for a particular customer,” Wendy advises, “and you should be closely watching for any changes in their business once you start dealing with them.”
“Diligent credit control involves a degree of dedicated input, and some businesses shy away from it for this reason, but in the long-term it can save a lot more than it costs”
“Businesses without their own dedicated credit control resource should consider outsourcing it,” Wendy concludes, “because it’s essential for the health of their finances in the long run.”