Each year, a significant number of start-ups and SMEs all across the world fail due to cash flow problems. Cash flow is the very lifeblood of a business and determines its financial health. It’s necessary to make the required efforts to ensure that your customers pay on time, which will spare you the horrors of unrecovered business debt.
Instead of getting stuck in the cycle of late payments, you should seek to streamline the process and develop effective systems. To maintain the utmost health of your business, try to identify a potential bad debt and get done with it as soon as possible, and CreditQ will help you in your complete business credit report.
If you want to get paid on time and reduce the cash fluctuations, adopt a worthwhile late payment management policy.
Here are 7 smart tips to help you create an effective credit control system.
Inspect Your Customer’s Credit Management
To check against late payer customers, you can research their credit behavior before entering a business deal. Many MSMEs overlook this step to save operational costs and regret it later.
Reducing the scope of research is still fine, but completely skipping it can take a negative toll on your business. Try to obtain the credit report of clients with the greatest risk.
Once you have obtained the crucial business details like trading name, registration number, contacts, etc., you can access their credit report online if you find their name in the credit defaulters list. Evaluating these reports will help you to make an informed decision.
Keep a Positive Work Relationship
Debt collection doesn’t necessarily have to be negative and does not require you to threaten the problematic clients. You can handle such sensitive business dealing by establishing a clear communication channel with them. Maintaining a positive relationship is the key to an effective credit control process.
Try to make some courtesy calls to seek confirmation of paperwork receipts. You can send reminders before the due date, along with the payment details. Such kind of communication makes you look friendly and professional. Also, it becomes easier for your customers to reach out to you warmly.
Quick and Accurate Invoicing
The most fundamental credit management technique is sending invoices quickly and accurately. You can take the following listed actions to enhance the efficiency of this process:-
- As soon as the orders are delivered, send the invoices
- Avoid sending the invoice via post and use digital methods.
- Make sure you are sending the invoice to the right person
- Get done with all the errors and address them with correct details.
Make sure you are confirming with the clients if they received the invoice. It helps troubleshoot any forthcoming miscommunication at an early stage.
Encourage Timely Payments
Make it easy for your customers to pay the invoice and encourage them to make an early payment. Ensure that all your banking details are clearly stated and offer them different modes of payment.
To reap the benefits of timely payment, you can put incentives such as early settlement discounts. Thill will encourage your risky clients to pay most of the invoices on time. If you think this can impact your profit margins, it’s best to include it within your pricing structure.
Prepare a Watch List
Don’t ignore the clients who are consistent credit defaulters. Prepare a watch list of all the late-paying customers and monitor them closely. This will guide you to take all the necessary due diligence before selling to them in the future.
You can also consider taking a deposit from the watch list clients beforehand. Some clients may face genuine credit problems but keep a tab on the persistent offenders. You can send a solicitor’s letter to those difficult clients who consistently ignore your phone calls and do not revert.
Forecast Your Cash Flow
Before getting into details, it’s important to note that forecasting is not the ultimate source of information. This can be very beneficial, but it has its limits. It gives you a rough outline of the expected revenue and a glimpse into the funds needed to clear any forecasted debt.
You can prepare yourself better by doing so. Once you have a clear idea about whether the debt will exceed its due date or not, you can take action promptly.
Take the Help of Technology
Try to ease the burden off your shoulder using the right kind of technology like “CreditQ” in your credit system. You can find out the credit scores of your clients from CreditQ, which gives MSME credit ratings. You can put up a system of automated credit control emails.
It allows you to carry out invoice chasing, gives credit limit suggestions, gives access to bad debt protection, etc. This will improve your overall daily cash flow management.
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