The New Year is a good opportunity to analyse your credit management performance to highlight your strengths and weaknesses.  Look back on last year and see if you can identify areas that should be adapted to improve your performance in the year ahead.  We think there are certain credit control practices that all businesses would be better off leaving in 2017. What do you think?

Relying on manual processes

The biggest causes of late payment in 2017 might not be what you think. Many assume that late payment is a result of companies holding on to funds to manage their own cash flow.

However, whilst sometimes this is true, according to research conducted by Tungsten Network and the Institute of Finance and Management the two biggest culprits are actually slow paper-based systems and a lack of automation at the businesses who are struggling to be paid on time. This suggests that by ditching your slow and manual credit control processes you could improve payment times.

So, 2018 could be the time to look at automated systems such as e-invoicing to improve your in-house processes and hopefully your credit control performance.

Supplying late payers

According to Bacs Payment Schemes, UK SMEs are owed £14.2 billion in overdue payments. This number could be significantly reduced if businesses stopped supplying repeat offenders.

Yet, many businesses continue to work with those who pay late with few repercussions for their poor behaviour.

Particularly when trading with larger businesses, the prospect of putting them ‘on stop’, whereby you warn your worst offenders that they will not be supplied with any further goods or services until all outstanding invoices have been settled, can be daunting.

You may worry about losing their contract. But, when those customers are putting pressure on your cash flow by consistently paying late and their custom isn’t critical, you could argue that they are no longer worth the money they spend with you.

In reality, of course and depending on the balance of power, if you need them more than they need you, putting them on a stop list is a difficult step to take.

Ultimately, however, persistently late payers are never going to pay on time if you keep letting them get away with it.

Being bullied by other businesses

Supply chain bullying has long been a cause of cash flow concern for smaller businesses. In fact, according to results from the Zurich SME Risk Index, larger businesses are responsible for the majority of late payments made to SMEs.

Despite various attempts by the government to curb these poor payment practices, including introducing new payment reporting regulations and appointing a Small Business Commissioner, the problem persists.

Therefore, the onus is on businesses to take the steps to protect themselves from this behaviour.

There are various credit management tactics that businesses can utilise in order to show that you do not tolerate poor payment practices. For example, charging late payment interest and putting repeat offenders on a stop list.

Understandably, many small businesses feel as though they cannot respond in this way to large businesses due to the value of the contract, and the prestige of being associated with such a big brand.

But, if you’re being forced to accept credit terms of 90 or 120 days – plus late payment delays – your cash flow could struggle as a result.

So, it’s time to put your business first. And, if they value your product or services they will respect your payment terms.

Continuing to chase old debts

We are not suggesting that you should stop chasing bad debts completely, just that you should be more wary of how you spend your credit control time.

Chasing old debts can consume a large amount of your time and resources, and the older they get the harder they become to collect. 

This often means that newer invoices which have higher chances of collection are pushed to the bottom of the pile.

But, this is potentially damaging, as neglecting the remainder of the sales ledger in this way can lead to more severe problems further down the line.

So, if you don’t have the necessary resources in-house to commit to chasing these old debts alongside the newer additions you might benefit from outsourcing these overdue invoices to a specialist debt collection agency.

This will remove the burden from your business and bring their expertise to the process, often improving results.

You can outsource one-off debts as and when you need assistance. Or, it could be beneficial to opt for ongoing support with all invoices which reach a certain age so that you can concentrate on other invoices knowing that your aged debts are in safe hands.

This allows the debt collection agency to become an extension of your credit control team, working with you to get the best results for your business.

Alex Hilton-Baird, Managing Director, Hilton-Baird Collection Services