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7 credit management tips for maintaining cash flow

By Richard Olsen

Maintaining positive cash flow is integral to the long-term running of your business. It enables you to meet your financial commitments and keep your operations ticking.

However, there are constant threats to cash flow. One that frequently affects businesses is late or missed customer payment. It impacts roughly half of SMEs and leaves financial gaps that you need to fill – or you risk restricted capital.

Credit management is crucial to preventing late payments and the implications on cash flow. We list our top credit management tips to ensure your customers always pay you on time.

  1. Run credit checks on customers

Bringing new customers on board is always risky, especially if you don’t know how reliable they are. If you have had issues with payment in the past, it might be worth conducting credit checks on new customers.

These credit checks enable you to uncover their financial history, so you can flag any instances of non-payment they have had previously. The decision is yours whether you want to continue to serve them or you may offer stricter terms that reduce the risk to your business.

  1. Utilise electronic invoicing

Electronic invoicing sends timely invoices to your customers straight to their emails. There is no room for invoices to get delayed or lost in transit.

Electronic invoices make it better for the customer without the risk of them losing the invoice, as there will be a permanent digital file. It will contain all the information they need to pay, reducing barriers.

It’s also easier and more cost-effective for you.

  1. Set out expectations early

Another must in your credit control processes is setting clear expectations for your customers. Outline when payment is due and the circumstances if they do not meet the deadline.

Once you have set these expectations, stick to them routinely. If you have indicated that customers have a set amount of time to pay, ensure this is clear on every invoice (ideally with a due date) and avoid giving people grace periods.

By setting rules in advance, you will ensure customers know what they need to do and avoid any room for misinterpretation.

  1. Send automated reminders

Common excuses for lack of customer payment include forgetting or not knowing the amount was due. Automated reminders ensure the payment deadline stays at the forefront of their mind.

If you have an electronic accounting or invoicing system, automated reminders may already be part of this. Essentially, they provide regular notices to customers that payment is due soon. They also let them know when payment is overdue, allowing them to rectify things.

If you send automated reminders, ensure they’re going to the right person to avoid them being missed.

  1. Make payment easy

Making your payment processes as simple as possible should encourage customers to pay on time. You need to eliminate any barriers that could prevent them from completing payment.

There are a few measures you can take to improve the payment process, including:

  • Checking your payment system accepts a wide range of payment types and accounts
  • Making it clear how customers should pay
  • Having a confirmation page or email that lets them know the payment has been successful
  • Ensuring all invoices have clear and correct payment details

 

A sound accounting system that immediately updates when a customer pays is also helpful. It prevents you from chasing people who have already paid, leading to wasted time and possible relationship damage.

  1. Refer to a debt collection agency

Ideally, your credit management practices will prevent missed customer payments. However, there may be occasions where, despite your best efforts, you can’t pin the customer down.

In these circumstances, you might consider using a debt collection agency. They are experts in chasing debt on your behalf, which might include contacting your creditors or visiting their company.

If you struggle to recoup owed money, they will obtain it on your behalf.

If you don’t use a debt collection agency, it’s worth having a protocol outlining when you will pursue legal action, the costs involved, and the steps to follow.

  1. Communicate with customers

Having regular communications with your customers is crucial. Not only will you be able to remind them of upcoming deadlines, but you’ll also learn of any issues ahead of time.

If any problems might lead to missed payment deadlines, you will then be able to devise a plan with the customer and put contingencies in place to protect cash flow.

Communication should also build strong relationships in which your customer feels more willing to pay and both sides better understand the most suitable payment process moving forward.

If you frequently struggle with late customer payments and the impact on cash flow, revolutionising your credit management practices could be the solution.

Speak to a UKBA advisor today to uncover how they will help you create appropriate processes for better-managed cash flow.

Richard Olsen | UK Business Advisors (ukba.co.uk)

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