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16 Aug, 2022

Getting your credit under control

Julie Burke, our National Credit Controller, is advising SME and start-up business owners to make sure they avoid poor credit control to ensure their survival.

“I like to think of a business as a person, at the heart of that business, is credit control. It brings money into the business. This in turn means it can be pumped back out in many different directions to keep the business alive, and of course, if it doesn’t, come in, it can’t go out and the business suffers.”

Common mistakes businesses
make in their first five years

Overtrading

Avoid taking on every bit of business that comes your way. This may sound counter-productive, but if you over-promise and under-deliver, this will be much more damaging to your reputation. It is better to take on what you can confidently complete to a high standard and build on that.

Avoiding the talk

New businesses get so caught up in generating new business that they avoid following up for payment. Whatever your credit terms are, you should be actively following up after this date with any fees due.

The see-saw effect

Instead of chasing payment with their customers, a lot of young businesses will opt to avoid paying their own suppliers, dragging out credit terms, extending limits, etc. In effect, just passing on their credit control issues to their suppliers. Eventually, suppliers become frustrated and stop supplying, and this is where the business is stuck. They can’t get paid, and they can’t get more product.  

Unpredictable events

We have all seen first-hand over the past two years what can happen when something nobody could have planned for occurs. Having a good handle on your credit controls means you can respond to these events, pivot your business and continue on with little to no interruptions.  

Eaten bread is soon forgotten

The longer a customer is left without paying, the less likely a business has of securing the full payment. People forget what a great job you did six months after. They are also more likely to start complaining about the service. To keep a strong, healthy relationship with your customers, it is better to agree as much as possible up front, in writing and after, and follow up persistently until payment is received.

How can you avoid the pitfalls of managing your business’s credit poorly?

Polite persistence

Follow up consistently with all debts past your credit terms. You want the customer to feel “they have been chasing this, I better sort this out”.

Make it real

Letters can lose their meaning and often are left unopened. A phone call makes it real. A letter does not look for an answer, a phone call does. Sometimes it’s only when we talk to our customers that we realise there’s a problem and this is the perfect time to discuss how we go forward.

Put credit control at the top of every agenda

Just like your customers, you can’t put your head in the sand. Deal with your credit control, analyse it weekly at a minimum and ask the hard questions. Remember it is the beating heart of your business. A healthy cash flow = a healthy business and your total debt should never be more than 10% of your annual income. This is what you should be working towards.

When is a sale a sale?

Businesses often focus on sales, sales projections and promises of sales! A sale is not a sale until it’s in the bank. Compare your expected sales every month to what has actually come in. They will be two very different figures, but only one of them is real. 

Deal with it

Whatever issues arise from chasing debts, deal with them. Remove any barriers to payment. If a customer complains that they have not paid because of a certain reason, follow that feedback until it is fixed. Then it’s back to chasing the payment.

Julie's advice:

 “If you are looking to start this process today, my advice is to start with your worst and work backwards. For example, look at all aged debt over six months, pursue every lead, follow up and chase this debt. When you are satisfied, you have done all you can, move the goal post and work from 60 days credit and so on. The key to this is breaking it down into manageable portions so that you can manage it.

“Finally, it is also important to ask yourself why. Why did you go into business in the first place? It’s most likely because you feel you have something really great to offer, you want to do well, and you want to be around in 10 years. To ensure this, get your credit under control today, and you can be more confident of your business and its future tomorrow.”