Credit Control

When taking on new customers, it’s crucial to implement effective credit control measures. If you are starting or have recently started a business in the Nottingham area, AHACCOUNTANTS can help you manage your credit requirements effectively.

Acquiring new customers is essential for growth, but if they fail to pay, it can create significant challenges for your cash flow. Ensuring that you properly assess a customer’s ability to meet credit obligations can save you from lengthy and costly legal disputes later on. If you can’t collect payments, your financial stability—and that of your suppliers—could be jeopardized. Remember, treating your suppliers well is as important as treating your customers well.

Factors to Consider

Before you take on a new customer, it’s vital to conduct thorough due diligence. Start with the following:

1. Customer Identification:

1. • Confirm the exact name and trading address of the customer. You might consider using the Companies House Webcheck service.
   • Identify their business structure (e.g., sole trader, partnership, limited company).
   • For unincorporated businesses, obtain the names and personal addresses of the proprietors (verify using letterhead if possible).
   • Contact other suppliers for references.
   • Check their credit rating through a credit agency.

2. Payment Terms:

1. • Discuss and agree upon payment terms with the customer before accepting any orders.
   • Document these terms in writing.
   • Review any documentation from the customer attempting to modify the agreed terms.
   • Negotiate payment terms with your suppliers to align them with your customer’s terms.
   • Assess if financing is needed to cover any gaps between customer and supplier payment terms (this requires an understanding of your working capital management).
   • Produce a cash flow forecast that outlines all expected income and expenses.
   • Establish a standard policy to prevent unauthorized alterations to payment terms.
   • Ensure you reserve the right to apply late payment and interest charges on invoices.

3. Invoicing and Follow-Up:

1. • Raise invoices promptly and accurately, ensuring all items are included at the agreed prices.
   • Include a reference number for the order to facilitate any future disputes.
   • Ensure your invoices meet all HMRC requirements for VAT compliance.
   • Implement a process for chasing outstanding invoices.
   • Develop a system for handling disputes and maintain a log of them to identify recurring issues.

Supplier Relations

Treat your suppliers with the same respect you expect from your customers. Not paying your suppliers on time can harm your credit rating and lead to negative business relationships. To maintain good supplier relations:

• Notify suppliers of any disputes as soon as they arise.
• Pay invoices on time by ensuring your creditors’ ledger is accurately maintained.
• Keep suppliers informed about any issues affecting timely payments.

Credit Insurance and Financing Options

Consider obtaining credit insurance if your business would struggle to function if key customers went insolvent, or if you find it challenging to assess customer creditworthiness. Credit insurance can provide peace of mind and improve your credit management capabilities.

Additionally, businesses should explore factoring and financing options if:

• Cash reserves are insufficient to pay suppliers on time.
• There is a need for growth.
• Short-term finance options, including overdrafts, are inadequate.
• Staff lack the necessary credit management skills.