Credit control, is not the same as debt collecting because credit control is a customer relationship building tool. The Oxford Dictionary defines credit as:

"credit Good reputation; power derived from this.
Trust in person's ability or intention to pay at some future time;
reputation of solvency and probity in business."

The above sums it up - the trust, or hope, you will get paid and there are few people who do not owe someone something. In business, credit was once only given as a convenience to those who did not really need it because it was more effective for regular customers to pay at month end rather than on collection of goods. Whilst this was in the 'my word is my bond' age it did not stop bad debts and Dun & Bradstreet did credit checks in New York over 150 years ago.

Granting credit needs a wide knowledge of business and a good understanding of human nature. Effective credit control ensures payments are made on - or soon after - due date by turning an overdue account into a priority payment in the debtor's eyes. This has turned credit control into a customer relationship building skill, which makes it assertive but non-aggressive.

One reason for late payment is a reluctance to ask for money. These days, the "only pay when asked," tactic is common and some advisors tell their clients to do just that. But even straight-up-and down businesses sometimes delay payment because they cannot afford to pay just yet.

"Until fairly recently, accounts receivable financing (or invoice discounting or invoice financing) has been seen as a lender of last resort. That is, you would only go to these lenders if you had exhausted all of your options due to the high costs involved."

 

The advice to companies is sound. However, both factoring  and invoice discounting can be expensive. A better proposition is to tighten your credit control. If you can't afford to employ someone and don't feel that chasing your clients is your 'thing' then consider outsourcing the role. Fees can be surprisingly low!

How Businesses Can Have Cash Flow in the New Year

Accounts Receivable Solutions (SE Qld) are Outsource Credit Control and Debtor Specialists providing tailored solutions to small businesses. We reduce bad debt risks, improve cashflows and lower your costs using non-aggressive techniques. This protects customer relationships and gets payments in on time. Click this link for more information.