How do I ensure my invoices are paid to maintain healthy business cash flow?

It’s essential for any business to have a credit controller who is comfortable chasing payments to maintain healthy cash flow. However, it’s important to remember that credit control does not have to be aggressive. It is about adopting a set procedure and using it to build relationships between your credit controller and customers.

Tips for an Effective Credit Control Procedure:

• Have a customer account opening form.

Obtaining customer information from the outset helps minimise exposure should debt collection or litigation be required. Things to check in anticipation of this are:

Are they a limited company or sole trader?

Is their trading address different from their registered offices?

Who are your primary and secondary contacts in the company and in their accounts department?

What are their e-mail addresses?

You should also consider credit checking customers. This will help ascertain if your customers have a healthy finance history.

• For new customers, ask for a percentage of the invoice on account.

New customers should understand this request as it helps builds trust.

A typical arrangement might be:

For the first six months ask for 50 per cent of the payment upfront or on delivery.

For 6-12 months ask for 25 per cent.

For 12+ months payment within seven days of your invoice.

• Review how your invoices are sent.

Are you delaying the invoice reaching the right person by sending via post?

Contact your debtors to advise them you now send invoices by e-mail. Ensure you put a read receipt on e-mails so that denying receipt of the invoice is not an option if payment becomes overdue. Make sure payment details are clear to see on the invoice.

• Anticipate common responses.

A common customer tactic is to query an invoice when chased for payment if they are due a credit note. This automatically gives them longer to pay whilst they wait for the credit note to be raised.

Why not be pro-active as a credit controller and give customers a call after 7 days of submitting your invoice to find out if there are any issues?

If the purchase order does not match the invoice consider raising one invoice for the order alone and a separate invoice for any variations. This should mean the purchase order invoice gets paid without fuss and reduces any areas of dispute.

• Retention of Title or Recovery of Goods.

If you provide goods or services then it is good practice to seek payment of outstanding bills before providing further assistance. This is often the best point to ensure payment because you are needed for future orders.

If you have good terms and conditions you may be able to recover your goods if payment is not made.

• When and how to start chasing payments.

Assuming your invoice terms are 30 days and you already know your invoice has been received without query, commence chasing payment on 35 days.

An effective procedure is:

E-mail the debtor with a polite reminder requesting a payment date and attach all relevant invoices/statements/payment details. Again, put a read receipt on the e-mail.

If no response is received follow this e-mail up with a phone call two days later to establish if any problems need to be rectified. Confirm the content and actions of that conversation with a further e-mail. Set a reminder to follow up again in 7 days time, allowing them time to pay.

If payment remains outstanding after the 7 days, send an e-mail advising as such and that the matter will be passed to a solicitor within 7 days.

At this point, depending on the customer, you can also add on late payment fees as follows:

Debt up to £999.00 – £40.00

Debt up to £1,000.00 and £9,999.99 – £70.00

Debts over £10,000.00 – £100.00

The letter threatening legal action draws a line under your company chasing payment and late payment fees can be used an incentive to pay promptly.

If you do not receive a response pass the matter to a specialist solicitors to send a “Letter Before Action” which advises debtors what your next legal steps will be.

If the recovery procedure reaches a Solicitor or you proceed with a court claim your Credit Controller will already have a chronological file of correspondence to assist you. Debtors will have little Defence to any claim brought. You may consider MCOL (Money Claims Online) which is an online method of issuing a claim at Court to seek a Judgment for the debt due. A good debt recovery solicitor would offer support training a credit controller on these small claims matters.

Don’t lose control of your business by losing control of your cash flow.