Controlling Credit in a Small Business, Making it Work
Posted October 18th, 2010 by adminOn 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, some companies I have had personal dealings with have sent me demanding reminders for payment even before the payment deadline has been reached which just makes me dislike that company. Indeed despite my own beliefs I also made them wait until the last possible moment in some attempt to redress my annoyance, on the other side of the coin there have been instances in my own business of forgetting about an invoice due and remembering and paying it only following a reminder. Clearly being too passive is less damaging to your client relationships but will destroy your cash flow as surely as being too aggressive will destroy your reputation, this is the credit control conundrum.
The answer.
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
Some commentators will tell you to outsource the process and alleviate most of those concerns, while this is a decent remedy for larger organisations I am not a proponent of advising it as a solution for small businesses who in my experience tend to have a much more personal relationship with their clients and if the customer has an issue they want to deal with it personally.
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. The business owner keeps control by having the software set to carry out only the actions he or she is actually happy with. You may be thinking that software sounds mighty expensive and you are right, however particularly with credit control there are some extremely reasonably priced solutions available that could suit almost any size of company, simply shop around and you will find something that works for you and your accountant, all you need to be wary of is makin certain that any software you invest in is scaleable, your company will grow and you don’t want to have to change the sytems infrastructure you are using because your current solution can not grow with you.
3rd Party Invoicing
Invoice factoring is a financial arrangement between yourself and a financial organisation (the factor) whereby you basically sell your accounts receivable to the factor for an immediate payment usually a percentage of the total accounts due. 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. You no longer have to think about this account, the factor bears all responsibility for collecting the account and the debtor pays the original $5000 direct to the factor to settle the account. This works because once invoiced you are guaranteed immediate payment and you need not think about that account again, you are removed from the whole pay and bill process allowing you to get on with your own business.
Although each solution has attractions credit control software offers the most flexible solution without giving control to a third party, if you cannot afford dedicated in house credit control then software is the best solution for you. 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.