Cash-flow the lifeblood of business

Credit control has never been more vital than in today’s environment.

It must be a priority that all businesses ensure that their customers are settling invoices on time.

With slim operating margins the norm, very few companies can afford the spectre of significant bad debts.

Small businesses in the UK are owed billions of pounds in late payments, but new research has shown that a third are reluctant to chase slow-paying customers because they are worried about upsetting them or feel embarrassed.

Four in five, SME’s say they avoid chasing debtors because they find the process 'uncomfortable', while the remaining 20% are afraid of antagonising customers.

This is a dangerous approach resulting in more than a third of UK SMEs reportedly writing off thousands of pounds of bad debt every year.

The following are some procedures which companies can employ to increase the efficiency of credit control.

Set credit limits for each customer and review these regularly.

Be concise in trading terms for example it is better to specify 30 days from date of invoice rather than 30 days from end of month.

Issue monthly statements detailing invoices paid and those outstanding.

Score your customers and set a collection policy accordingly.

Do not let overdue payments go unchallenged.

Evaluate aged debtors on a weekly basis.

Prioritise collections and press for settlement of the highest values first.

Have a plan of action if payment is not forthcoming within a set date.

Despite the vital importance of maintaining a healthy cash flow three quarters of SME’s do not have a person or a procedure in place for chasing bad debt and a vast majority have no established escalation process for late payments. This is a recipe for disaster.