An important factor that can sink a small business is not being able to get the money you’re owed. You send out invoices and hope for the best, but if clients take too long to pay or ignore you, then you don’t have the cash in the bank when you actually need it.
A credit control process is a way for you to ensure you get paid on time every month. If you’re sending 20+ invoices a month – or you’re regularly getting paid late – you should consider creating a simple policy.
Common credit control mistakes small businesses make
When it comes to getting invoices paid, many small businesses often make these mistakes:
- Not sending the required information on the invoice, or sending the invoice to the wrong person.
- Sending invoices outside of a client’s payment run.
- Having unclear payment terms.
- Taking too long to send the invoice in the first place.
- Not following up on late payments.
What your credit control process should include
A credit control process isn’t complicated. It can be as simple as setting aside specific days each month to send out invoices and follow up on unpaid accounts. Xero makes this easy by enabling you to send recurring invoices, automatically adding totals, creating inventory items, and a whole host of other features. You can also see at a glance which invoices are overdue.
The first thing you need to do is make sure you’re sending the right information to the correct person. Each company has a different payment process, and if you’re not giving them the information they need, you’ll be slowing down payments while they find that information themselves. It’s annoying, but sometimes you have to change your process for certain clients to conform to the way they do things.
If it gets you paid faster, it’s worth it.
Next, clean up and clarify your terms of trade/payment terms. Make sure they spell out in clear language how long your client has to pay you, and the consequences for this not happening. Xero have a great guide on creating payment terms.
You’ll want to make sure you’re sending out invoices on the best date. Find out when payment runs are done at your main clients and adjust your invoicing dates to fit within those runs.
Then comes the hard part – you need to get serious about sending out invoices as soon as the job is done. Again, this is why being on the cloud is so awesome. You can eliminate a lot of the double entry involved with writing or typing out invoices in the platform. Many of our clients who do service-based work will use the Xero app to create and send an invoice as they’re leaving a job site.
Finally, if an invoice is late and you’ve already sent an email reminder, don’t be afraid to pick up the phone. It can seem scary to confront a company about an unpaid invoice, but most of the time there’s no ill intent. Things get misplaced and forgotten. People get so many emails, they often forget to check or action them. A phone call will remind them you’re still waiting, and should speed up the payment process.
What’s your current credit control process? Are you making some of these common mistakes?
Here at Change, we’re all about positive changes to improve your business. We can provide you with that year-round visibility that’s so key to being successful in business, all while taking a stressful job off your hands. Go on, book a meeting to talk to the team at Change about your business needs.