Why is effective credit control so critical for your business?

Effective credit control is fundamental to ensuring a business has a regular flow of cash. Securing a good cash flow is one of the most important aspects of running a business in order to enable sustainable growth or to support a fight for survival. As we emerge from a pattern of lockdowns and openings, it’s never been more important to ensure your business is in the strongest financial position possible.

Welcome to our another blog in our series, Planning for Growth, that will help organisations and businesses of all size following the roller coaster 24 months of lockdowns, openings and for many, a reduced customer base.

Streamlining your processes will help your business flourish – today we take a look at Credit Control.

The role of credit control is to ensure the timely and full payment of an invoice. If you are a smaller business, this may be a role that you take on yourself – and it may not always receive the attention it should. Effective credit control mitigates any risks from late payment – one of the biggest reasons that businesses encounter cash flow problems – and ensures that invoices are paid when they become due and helps to avoid non-payments and costly follow up measures, such as solicitors’ fees.

This is why effective credit control is critical for your business

1. Minimise Risk

The more customers you have, the greater your exposure to credit risk, particularly if you have late or non-payers.

By keeping on top of your credit control, you can manage and mitigate this risk – both by discouraging late payment and by setting credit limits that will allow you to absorb any unavoidable losses without the risk of total business failure.

2. Save time

A systematic approach to credit control will save time when compared to taking an ad hoc approach. By reviewing outstanding debts on a regular basis, you can follow up on any late payers quickly – which will highlight any issues and give you time to either rectify issues or initiate a process to secure payment. Remember that chasing debts can be time-consuming and may need multiple phone calls, letters or meetings to resolve. This is particularly hard when you need the invoice to be paid quickly to aid cash flow. 

3. Save money

The more payments that arrive promptly, the more funds you’ll have available for investment, paying your own bills (and avoiding late fees) or wages. This means that you are less reliant on short-term fixes such as bank loans. 

If a debt is not collected in a timely manner, it may have to be written off, leaving your business out of pocket. Should you decide to pursue a debt, bear in mind that solicitors and court costs are both expensive and very time consuming.

4. Peace of Mind

Knowing that your business has a good cash flow and that invoices are being paid will help you to sleep at night. 

By adopting sensible and proactive credit control procedures, you will minimise your risk. Remember that the HB team is here to support you. If you would like to talk about how we can help you and your business, please feel free to contact the team on 01992 444466.  We’re accountants for business and we’re here to help you survive and grow.

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above

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