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Let’s talk about something responsible for the failure of 82% of SMEs, something affecting the mental wellbeing of 32% of SME business owners and something hindering the growth of your business. Cash flow problems. The unpredictable ups and downs of cash flow can tarnish our business dreams. Here we will explore the role of credit control in helping businesses out with their cash flow.

Understanding cash flow issues

Cash flow woes arise when a business grapples with imbalances between income and expenses. The causes vary from delayed customer payments to unforeseen costs or seasonal fluctuations. For small enterprises with limited resources and thin margins, even minor cash flow disruptions can negatively affect day-to-day operations and growth prospects.

What is Credit Control?

Credit control involves managing a company’s accounts receivable to ensure timely invoice payments. This approach monitors payment schedules, addresses late payments, and maximises cash flow. It’s essential for the financial stability of a business and enabling sustainable growth.


Why is credit control important for cashflow?


Effective credit control plays a vital role in mitigating cash flow problems by managing the risk associated with extending credit to customers.

Without proper credit management practices in place, businesses are susceptible to

  • late payments
  • bad debts
  • cash flow fluctuations.

By implementing robust credit control measures, small businesses can better manage their receivables, improve cash flow predictability, and minimise the impact of credit-related risks on their financial stability.


How to Credit Control?


Optimise debt collection


In today’s fast-paced business environment, staying on top of payments is crucial for maintaining financial health. Leveraging a combination of text and email reminders has been shown to significantly improve a company’s chances of receiving payment promptly.

Research indicates that businesses employing both mediums increase their likelihood of receiving payment within a week of the invoice due date by an impressive 56%.

Surprisingly, despite the clear benefits of text messaging, many companies have yet to fully adopt this technology. Less than 10% of businesses utilise text messaging to remind customers of their payment obligations. This is a missed opportunity considering the effectiveness of text messages over emails. Unlike emails, which often go unread or ignored, text messages boast an incredible 98% open rate. Moreover, customers are more likely to respond quickly to short, direct messages received on their phones, making text reminders highly effective in prompting timely payments.

Text messages are particularly advantageous for reaching customers who are frequently on the move. Whether they’re out of the office or simply away from their desks, SMS messages ensure that payment reminders are received promptly and acted upon.

However, email remains the preferred mode of communication for customers in office settings. Emails provide the flexibility to convey more detailed information and are ideal for engaging in more complex conversations regarding payment matters.

By combining the strengths of both SMS and email reminders, businesses can create a comprehensive payment reminder strategy that maximizes their chances of receiving payments on time. This integrated approach ensures that customers are reached effectively, whether they’re on the go or in the office, ultimately contributing to improved cash flow and financial stability.

Credit Checks

Implementing credit checks is a pivotal step in enhancing credit controls for businesses of all sizes. By conducting thorough assessments of potential customers’ creditworthiness before extending credit, businesses can mitigate the risk of late payments and defaults.

Credit checks provide valuable insights into customers’ financial histories, payment behaviours, and overall credit risk profile, enabling businesses to make informed decisions about credit terms and limits. This proactive approach not only helps businesses avoid potential losses but also strengthens their ability to manage cash flow effectively.

With accurate credit checks in place, businesses can establish clear credit policies, identify high-risk customers, and implement targeted credit control strategies to safeguard their financial stability and promote sustainable growth. Ultimately, integrating credit checks into credit control processes empowers businesses to navigate cash flow challenges with confidence and resilience.

Invoice Quickly and accurately

Improving credit control procedures starts with efficient invoicing. Here are some quick tips:

  • Send invoices promptly via email.
  • Double-check recipient details.
  • Ensure invoice accuracy.
  • Follow up to confirm receipt and address any issues early.

Prompt invoicing reduces payment delays and confusion. Consider shortening payment terms from the standard 30 days to 14 or 7 days to encourage timely payments, especially considering that 87% of businesses report late payments. Communicate any changes clearly to customers. These simple steps streamline credit control and enhance cash flow management.

Make it easier to get paid

It’s easy for a customer to give the “the cheque is in the post” excuse and the best way to combat this is by researching alternate payment methods you could offer them.

You could offer the following:

  • Cheques
  • BACS
  • Credit/debit card
  • Cash

This can give the customer options and will greatly increase the percentage of invoices paid on time.


Work together to improve

While your accounts receivable and finance departments play a vital role in overseeing credit control, it’s crucial to foster a culture of understanding throughout your entire organization regarding the significance of prompt payments.

Regular cross-departmental communication is key to ensuring that all members of your team grasp the importance of credit control and comprehend how their actions can impact cash flow.

For instance, your sales team should be familiar with payment terms and deadlines, collaborating closely with finance colleagues to manage customer accounts and uphold credit agreements.

Customer service teams should recognize the urgency of swiftly addressing customer inquiries and concerns regarding invoicing.

Product teams should be mindful of order fulfilment timelines, while marketing staff should keep customers informed about any changes affecting their payments.

Encouraging open communication across departments will foster a collaborative environment where everyone works collectively to uphold healthy cash flow practices.