The current culture of late payment is forcing credit controllers to spend more and more of their time chasing overdue invoices.
Not only is this frustrating, but it can also prevent other aspects of credit management from being fulfilled effectively. This can then lead to higher average debtor days and some significant cash flow gaps.
Watch the following 1-hour webinar to gain a better understanding of the different methods of the collection which includes negotiation and assessments on collectability. Learn to comprehend the legal perspective in debt collections, negotiating out-of-court settlements, and how to check on debtors’ credit status.
While some credit management tactics are notoriously arduous and time-consuming, there are some habits that will help to save you time whilst improving performance.
Here are five such credit management techniques to consider.
1. Perform Regular Credit Checks
Performing regular credit checks will take a little of your time. But it’s nothing compared to how much effort could be wasted chasing late payment if you offer credit to those who cannot pay.
A credit check will instantly provide valuable insight into the financial status of your customers. This allows you to make informed decisions about whether or not you trade with them on credit terms.
There are also various other ways to monitor how your customers are performing financially. Having one of these signs on its own might not start alarm bells. However, if you recognize multiple red flags from this list you could be dealing with a customer that simply cannot afford to pay you.
1. Broken promises
When a customer promises to pay but doesn’t follow through, it could be time to start to question their integrity and ability to pay you. How many chances are you willing to give them?
2. Unreturned phone calls
If your calls are going unanswered and you’ve left multiple messages without a reply, it might be a sign that your customer is avoiding you. This could be a sign that your customer is unable to pay.
3. Changes in payment patterns
Pay attention to your repeat customer’s paying patterns. When you notice that it’s changing, it could be time to start questioning their cash flow. Especially if they always used to pay well in advance of due dates.
4. Changes in buying patterns
Similarly, sudden changes in how much your customer is purchasing from you could also be a sign that they are having cash flow difficulties. Which in the end, it could lead them to delay payment in the future.
There’s a whole range of excuses a business can come up with to stall or avoid making payment. If a customer is going through the repertoire, or their excuse just doesn’t seem genuine, you should question their ability to make payment.
6. Request an extension
The occasional request for a payment extension is probably not a serious concern. But, if the client continually asks for an extension then you’ll know that something’s not right.
7. Management resignations
When a number of top-level executives resign over a relatively short period of time, it could be a sign that the company isn’t performing very well.
8. Sudden stock/asset sales
If the company is suddenly selling assets or stock at sale prices it could be a way of minimising outgoings or bringing in extra money to pay upcoming bills – and your invoice may not feature too highly on their priority list if that’s the case.
9. High turnover of staff
If a company is struggling, their staff may decide to seek other employment either for security or to escape an unpleasant working environment.
10. Late filing of accounts
Take a look at your customer’s filed accounts. The information provided could give you insight into their financial health. Late filings in particular could be a sign of trouble.
2. Tighten Credit Terms for Selective Customers
Similarly, if you have doubts about a customer’s ability to pay, either through a poor credit score, gut feel or poor payment performance in the past, you might want to be a bit more stringent on the credit terms you offer.
This simple step can significantly reduce the risks to your cash flow. And, by keeping a watchful eye on these customers, you will limit the need to spend ages chasing them for payment further down the line.
You could even take this one step further and refuse to work with any poor payers altogether. Whilst this sounds like a drastic step, you should ask yourself if a customer is worth keeping if they don’t make payment on time and ultimately cost you time and resources chasing for payment.
3. Send Invoices Electronically
You can significantly improve processing times by creating and distributing invoices electronically. By avoiding the need to print, post and process hard copies, invoices will get to where they need to be faster. This increases the chances of them being paid within agreed terms.
Also, automating this process will simplify and streamline your procedure to reduce the chances of late payment. For example, you can schedule invoices to be sent out on a particular date to remove any delays from the process.
Statistically, the longer an invoice goes unpaid the harder it becomes to collect. Therefore, it seems logical to prioritize overdue debts to get them paid as soon as possible so that you don’t end up wasting months of your time further down the line.
That said, it is vital that you learn when your in-house efforts have been exhausted and when to seek professional help, as continuing to throw time and money at bad debts can be even more detrimental to your business.
4. Diarise Courtesy Calls
Making courtesy calls before your invoice is due is often one of the most overlooked credit management techniques. But keeping in touch with your customers throughout the credit period can significantly improve payment terms. Plus, if any potential problems arise, you will have sufficient time to address them before your cash flow is affected.
Whilst performing these calls will take some time out of your day, having them scheduled in ensures that regular contact is maintained, reducing the likelihood of late payment and saving you lots of time chasing in the long run.
5. Invest in Training
It’s important that the person or people responsible for credit control have the required skills to do the job effectively or you could be wasting valuable time and your cash flow could suffer as a result.
Whilst taking the time out to participate in some training might seem counterproductive, refreshing your team’s skills and learning new best practices can significantly improve their performance. This is then likely to be reflected in reduced debtor days. At Aventis, we offer a 1-day high-impact workshop on Speedy Debt Recovery and Effective Credit Management that will equip you with practical techniques in debt recovery while retaining customer satisfaction.