Credit control and cashflow management are vital to business stability, especially for UK SMEs facing challenges from late payments. In June 2023, insolvencies in the UK rose by 16%, underscoring the need for robust credit management to ensure timely payments and avoid financial distress.
Key Strategies for Effective Credit Control
1. Know Your Customers and Set Clear Account Terms
- Conduct thorough credit checks and ensure that those signing credit agreements have the authority to do so.
- For high-risk clients, consider additional security, such as personal guarantees or parent company assurances.
2. Use Strong Terms and Conditions
- Draft clear terms and conditions that safeguard your interests, and make sure they are integrated into your contracts to prevent ‘battle of forms’ disputes.
- Ensure your team understands these terms and knows when and how to negotiate if needed.
3. Keep Accurate Records
- Document every stage, from initial enquiries to payment follow-ups, to create a solid foundation for debt recovery if disputes arise.
4. Invoice Promptly
- Timely invoicing is essential to maintaining cashflow. Keep track of due dates and follow up immediately when payments are overdue.
5. Prioritise Debts by Due Date, Not Size
- While large debts may seem urgent, prioritising smaller overdue amounts by due date helps prevent cashflow issues.
6. Train and Delegate Credit Control Tasks
- A dedicated, trained credit control team can maintain consistent pressure on debtors, improving payment collection without causing undue tension.
7. Document Communication with Debtors
- Keep detailed notes and confirm conversations with emails. This provides a clear written record that is invaluable if disputes arise.
8. Payment Plans: Document Everything
- If a payment plan is agreed upon, formalise it in writing. In the UK, contract variations must be documented to be enforceable.
9. Use Accelerator Clauses and Interest Charges
- Accelerator clauses allow for the entire balance to become due if a payment is missed, incentivising on-time payments. UK law also permits businesses to charge statutory interest on late payments (8% above the Bank of England base rate) and claim recovery costs.
10. Focus on ‘Won’t Pays’ Over ‘Can’t Pays’
- Focus efforts on debtors who are avoiding payment rather than those unable to pay. Writing off irrecoverable debts and claiming back the VAT can be more beneficial than ongoing recovery efforts.
11. Consistency is Key
- Following through on promised actions shows debtors that you’re serious, helping you stay top-of-mind among their creditors.
By applying these strategies, UK businesses can improve cashflow and maintain strong client relationships. Effective credit control helps ensure timely payments, providing the stability needed to support growth and reduce the risk of insolvency.
Disclaimer:
While we have made every effort to ensure that the information on this website is accurate and up-to-date, tax laws and regulations are subject to change and may vary based on individual circumstances. The content on this website is provided for general informational purposes only and does not constitute professional advice.
The information contained on this website should not be relied upon as a substitute for specific, tailored advice from a qualified professional. We strongly recommend that individuals and businesses seek professional consultation before making any decisions or taking any actions based on the information provided here. We do not accept any liability for any loss or damage, direct or indirect, arising from reliance on the information on this website. Use of this website and the information contained within is at your own risk, and no responsibility will be taken for actions taken or not taken based on the content of this website.
