Why Having Effective Credit Control Is Vital To Every Small Business

Every small business owner would be familiar with the panic associated with customers paying late. It wreaks havoc with your business operations, regular payments to employees and other operational charges. In fact, it has been seen that over 55% of the total value of B2B invoices in India were reported to be paid late according to a 2016 report by Atradius. This causes problems for the business and in turn, the other businesses it works with, thereby causing a negative cascading effect. To counter this, most businesses have in place a process called credit control. In simple words, it is a practice followed by businesses to ensure that customers don’t take too long to pay you by following up through emails or calls.

We know that as a small business owner, credit control might not be something you look forward to as you probably dread following up, coming across as rigid or burning bridges with your customers. But here’s something you need to know, it’s imperative that you have a credit control process in place if you already don’t!

If you’re worried that credit control could hamper your relationship with your clients, hire somebody else who could do it for you. By having a credit control in place, you can ensure that your clients pay up on time without affecting your day-to-day business activities while you maintain healthy relationships with your clients. Moreover, if you have a customer who often delays payments, it’s probably time to ascertain if you really need him or her as a client.

Now that we have talked about the WHY: why is important credit control, let us move on to the HOW: how to have an effective credit control in place.

  • After a week of sending the client your invoice, you could email them to make sure that the invoice reached them. You can use a simple template like the one below:
Hi XYZ,Hope you’re doing good. I just wanted to make sure you received the invoice(s) I sent on [date]. Invoice number: Purchase order number: If you have any issues, you can always reach out to me or [alternate contact] at [phone number] or [email ID]. Looking forward to doing business with you again. Best, ABC
  • Wait for two-three days and send a follow-up email like the one below with some more details such as the amount they owe you, date of expected payment and any issues with product or service that could delay payment:
Hi XYZ,Hope you’re doing good. I wanted to follow up on the previous email I sent you regarding the invoice(s) in case you didn’t get time to read it. Here are the details of the invoice – Invoice number: Purchase order number: Amount due: Expected payment date: [Issues with product/service that could delay payment] (if any) If you have any issues, you can always reach out to me or [alternate contact] at [phone number] or [email ID]. Looking forward to doing business with you again. Best, ABC
  • Sometimes, clients may not respond to emails and will directly transfer the money. So, make sure to check your bank account before moving to the next step.
  • Call your client and refer to the follow-up email you sent. Be polite and persistent. Don’t be apologetic because it’s your money, after all.
  • If the payment is overdue for a week or two, follow the escalation process if you have any and transfer the issue to somebody more senior.
  • Whenever they pay, remember to follow up with a warm thank you email. It will especially be helpful the next time you need to chase payments.
  • If, however, the payment is delayed by a month or more, you might be required to rope in a recovery agency who can recover the money for you. But this is only for extreme cases where the client refuses to pay what’s due to you.

To circumvent problems surrounding delayed payments, KredX offers a solution to manage late payments. KredX helps businesses grow by meeting their working capital requirements through invoice discounting. We are India’s leading invoice discounting marketplace that assists businesses to gain collateral-free access to working capital funds in 24-72 hours as opposed to a traditional payment tenure of 30-90 days. This ensures a healthy cash flow and subsequent business growth. If you’d like to learn more about KredX, you can visit our websiteor write to us at info@kredx.com.

Does your business already have a credit control process in place? We would love to hear from you in the comments section below!