Over 50% of UK SMEs rely on customers paying them to ensure that they in turn can pay their own creditors, however, recent research suggests that UK SMEs are owed on average £250,000 in late payments. If your business doesn’t have a credit policy it should get one or create one as soon as possible and our latest blog below shows how you can create a good credit policy for the success of your business.
The main benefits of good credit management policies are to ensure a business maximises credit sales with the minimum amount of risk. Credit risks should be identified to reduce the risk of sales going wrong and invoices not being collected in accordance with agreed terms. Your credit policy should detail the requirements you have set for your terms of payment.
Riding the economic storm
More than half of small businesses are now more aware of how business funding works, having possibly utilised government support and lower interest rates during economic crises over recent years. Almost 55% of businesses are now much more likely to seek advice regarding finance for their business than they would in previous years. However, with interest rates rising and inflation still high, there are a number of essential tasks you should implement if you haven’t already done so – details in the steps below.
1) Know your customer
(Also known as KYC) – ensure you know who you are trading with. Is it for example John Smith, or John Smith Limited, or John Smith and Sons trading in partnership. Credit reports are readily available online for a small fee so utilise these services to ensure you are fully aware of trading history, financial background and therefore the customer’s potential ability to pay you.
2) Create a set of payment terms
This will make your clients aware of how long they have to pay your invoices. Always issue your trade credit terms to new clients before the first order. Don’t be afraid to retrospectively issue terms to all your existing clients.
3) Invoice accurately
Ensure you are invoicing your clients effectively and accurately. An incorrect invoice will delay payment. It is worthwhile contacting your clients before an invoice is due for payment to confirm they have received the invoice and to enquire when the invoice will be on the payment run.
4) Know when to chase
As soon as an invoice becomes overdue, ensure that you chase payment. It may be worth assigning responsibility for chasing invoices to a specific member of staff if you don’t already have a credit controller within your business.
5) Seek professional advice if needed
If customers have exceeded your payment terms and if all chasing efforts fail to result in your invoice being paid, seek professional advice from a solicitor or a debt collection agency.
At Premium Collections Group Ltd, we work in partnership with clients to help advise on the implementation of credit policies through our consultancy service. We also successfully and amicably achieve payment of unpaid invoices on our client’s behalf. We work with clients based in the UK, Europe and around the world and are competitively priced for all of our services. Please contact Paul Daine, Managing Director by calling +44 161 962 4695, or you can email firstname.lastname@example.org.