Controlling Credit in a Small Business, Making it Work
On the face of it the simple answer to getting credit control right in a small business is simply to keep on top of it and staying in communication with clients about their accounts without going to the extremes of aggression or letting them forget you exist, speaking personally nothing turns me against an organisation more than when they aggressively demand payment even before the pay by date is reached. the result of their aggressive approach is that I have withheld payment for as long as possible in a misguided attempt to annoy them back, conversely there have been occassions wher I have genuinely forgotten about an invoice to pay and therefore it only got paid when I recieved a reminder. Aggression in credit control should be controlled if you want to keep your clients as customers, however a certain level of aggressiveness is required if you are to maintain cash flow and stay in business, there lies the big question of how to manage your credit control activities to everyones benefit.
The remedy.
No one answer will be a panacea for all businesses of all sizes, each business will need a remedy to suit and presented here are the possible solutions to maintain your profitability without alienating your customer base.
Outsourced Credit Control
Outsourcing your credit control will be an answer for some, contacting out your invoicing may relieve some of the worries, for large companies this can be a useful solution, however smaller businesses tend to have closer ties with their clients and outsourcing such a critical process as credit control could be harmful, the relationship that exists between your client and you means you may know of reasons why you should hold back collecting for a while or not, this control os lost with outsourcing and while for large entities that is ok, i counter that for small ones it is not.
Software Solutions For Credit Control
Another possible solution is to use credit control software which is a great remedy for a small business, the software will not forget accounts, will not send anything other than what it is programmed to do and the content of all communication is matched to your relationships. Control is maintained in house and should a client have particular issues it is possible for the company to either over ride the software or input the data to allow the software to cope with the issue. Some software solutions can be complicated and expensive but some are very affordable for all but the smallest businesses, look around before diving headlong into a purchase and you will find a perfect match for your needs and budget, just ensure that the software you buy into is scalable so it can grow with your business.
Selling Invoices
Think of this as selling your accounts to another company, basically they buy your debt from you for a pre arranged percentage giving you immediate cashflow, your customer then has to pay to the factoring company and all credit control is undertaken by them. An example of this is if you get a factoring company on board, your invoices carry their payment details and contact details, you bill your client ten thousand dollars and send the invoice, one to client, one copy to the factor, the factor then pays you immediately the ten thousand less their pre arranged percentage and they get paid from the client in 30 days or whatever the terms are. Once invoiced the account is no longer your worry, the factor deals with everything including chasing, reminders and non payment.. A perfect solution for those companies that need to give long payment terms but can not suffer the cash flow issues that 90 day payment terms can cause, although losing a percentage is not ideal it does remove any additional costs in chasing payment and potential non payment.
Each remedy has merits and each business will get something from one or another, my own favoured method is using credit control software as it allows me to keep control of the whole process but eliminates a whole ton of chances for me to get it wrong. Whatever you decide please give a lot of thought to your credit control processes, face up to it, turning over millions is no use unless you are being paid, take control of your credit control before it takes control of you.