The Importance of a Credit Control System

It is a well-known fact that the longer a debt remains unpaid, the more difficult it becomes to collect. Many people find chasing overdue debts uncomfortable, so they keep putting off the inevitable which further reduces the likelihood of recovery.  

It’s also a well-known fact that your customers will try to hang on to their money for as long as they can in order to preserve their own cash-flow. Sometimes the worst offenders are large corporations that use their dominant position to take advantage of smaller businesses. So what can you do to help protect yourself from these risks?

Credit Control System

1. Negotiate your payment terms on a client by client basis, particularly with the larger ones. If a prospective client indicates that their standard payment terms are 60 days, make the time to have a conversation with them about the impact on your business, and try to negotiate more favourable terms. Many times, simply having this conversation will result in a better outcome, and your client will respect the fact that you are bold enough to raise it as an issue. As a debt recovery company, we deal with many major corporations where their standard payment terms are 60 days and almost every time we put up an argument to reduce the terms, we are able to negotiate a more favourable outcome – you should try it too.

2. Let’s say your agreed terms are 30 days, then it is completely reasonable that you would come looking for your money on day 31. Make sure you explain this to all new customers before you fulfil their first order. If payment is not made by the due date, it will come as no surprise when you call or email them on day 31 chasing your money. Believe it or not, your customer will also respect your rigorous approach to credit management and be more likely to prioritise payment of your invoice over others.
3. Draft a simple reminder email and develop a telephone script for your follow up contact. Use the email and /or follow up call as soon as the account is past due. This will reinforce to your customer that you are on top of your receivables and will influence how they pay your account in future.

The most common causes of business failure include bad debts and cash-flow problems. Often the two go hand-in-hand, so it is essential that someone in your business is keeping a close eye on things. One of the challenges for SME’s is that often the owner, or senior manager is pulled from pillar to post in the business and simply does not have the time to focus on receivables with any consistency. If this is the case, then the first thing that you need to do is to appoint a person in your business who is responsible for following up debtors. This doesn’t have to be a full time role, but nevertheless, it is a vital one.

Develop a simple system of credit control that applies to all your customers and make sure you use it. At a minimum your Credit Control System should include:

1. Verify who you are dealing with. At the very least confirm the legal entity with whom you will trade and check for any adverse information.

2. Keep in regular contact with your customers, were you discuss payment of their account. This builds rapport which in turn will result in you being paid earlier.

3. Develop a mechanism to resolve disputes or account queries promptly. If you leave issues unresolved, there will be no urgency in the customer’s mind to clear your overdue account.

4. Use the reminder email and telephone script (referred to in point 3 above) as soon as the account becomes overdue.

5. And finally, seek help from an organisation you trust as soon as you feel there is a problem. If there is a problem, and you have already attempted to resolve it, it usually doesn’t go away on its own!

When speaking with your new customer, discuss their invoice approval and accounts payable procedures. This conversation will help you understand what you need to do to ensure timely payment of your invoices. If a purchase order is required to process your invoice, make sure you know how to include this when you run your batch of invoices at month-end.

If you need assistance recovering an overdue debt, or want to learn more about implementing a simple system of credit control, contact AMPAC at or call us on 1300 426 722.

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