Credit Control at Christmas
As the festive season approaches, maintaining a robust credit control system becomes increasingly critical for businesses. The run-up to Christmas often sees heightened demand and increased sales, but it also brings challenges such as extended payment terms, strained cash flows, and the risk of late payments.
Ensuring effective credit management during this period is vital to safeguard financial stability and prevent end-of-year cash crunches. By proactively monitoring customer accounts, setting clear payment expectations, and addressing overdue invoices promptly, businesses can strike a balance between seizing seasonal opportunities and maintaining healthy cash flow.
With a recent study confirming that SMEs in the UK are owed £14.2 billion in late payments, it is unlikely that the issue will be going away anytime soon.
Sounds easy right? So why did a recent study show that 20% of directors have taken a salary cut to maintain company cash flow due to in-effective credit control? The simple answer, there is no effective credit control procedure in place within the business.
So why is this? With late payments one of the main reasons for cash flow difficulties in SME businesses its been proven to come down to poor debt collection. Sales invoices not being managed correctly and debts going on for so long un-chased they then become a debt having to be written of reducing profitability, relationships with customers and suppliers breaking down when the debt collection process isn’t handled properly and the debt collection in itself being too time consuming.
Credit control should be undertaken monthly to ensure that any sales debts from customer accounts are paid the simple reason for this is to ensure effective cash flow is coming into the company and also as mentioned above the longer the debt is outstanding the harder it may become to recover.
There are different systems available on the market in fact your accounting software probably contains one and sends out periodic statements of a customer’s account however is this process effective enough for your business?
How many emails have you opened, glanced over and disregarded?
Effective credit control needs a system of regular contact with the debtor, phone calls, follow up statements then if non-payment is still not received effective chasing letters and then as a last resort legal action.
When do I have time to do this, I hear you wonder?
You may not but here at Turpin Accounting Services we do, and we have to time and expertise to do this for a business enabling it to continue to trade and the debt collection process to work.
Turpin Accounting Services take the stress out of calling your debtors and sending out follow up correspondence, having a dialogue in place with customers before payment is due aids smooth payment making it easier for you to concentrate on working on your business and to keep your business to business relationships without strain. Whether it be once a week or once a month keeping on track with credit control it’s a simple and effective way to ensure debts aren’t written off and your profit margin isn’t affected.
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