One of the worst jobs that a new business owner needs to do is to carry out credit control and without a doubt, this is a task that is often avoided, even though it’s crucial for business survival.
We know that you can find a lot of information on the web about the nuts and bolts about the task but in this post, we wanted to look at a few of the things that never seem to get covered like the emotional and behavioural aspects.
So, get yourself a cup of coffee and a notepad because this may just make credit control bearable!
- It’s not personal
This is really important and that’s why we are covering it first.
Probably the hardest thing for people to deal with when they first start in business is that chasing money from people feels like something nasty and harsh.
Credit control is not personal. It’s all about business.
Remember that you have done the work, provided the goods or services and rightfully that money is yours.
You aren’t being too hard-headed and you aren’t being greedy or grasping.
You’re simply asking for what is rightfully yours.
Remember this when you are doing your credit control procedures because it’s easy to start thinking that it’s all your fault when actually it isn’t.
- It starts at the start
The problem so many people find is that they start thinking about credit control at the end of a transaction when the invoice is due to be paid.
If you do this then you will already be behind the curve.
In fact, credit control starts right at the start of your relationship with your customer.
When you agree to do work then make sure you send a contract over or at the very least a pdf set of your terms and conditions (you do have these don’t you?).
By setting the ground rules right from the start then you are in the best place to enforce those rules when it comes to court action and funnily enough, you are reducing the likelihood of it ever getting that far.
- Organisation wins every time
If you are chasing money then this is the key point – get organised and get your money.
Debtors can spot a well-organised credit controller a mile off and will respond accordingly.
If you are late chasing debts, if you are haphazard in your approach and if you are inconsistent in the way you behave then we can promise you that debtors will seize on that as an opportunity not to pay.
Get your forms and procedures all set out.
Get a set of terms and conditions written for you that assert your right to chase the money and levy interest and fees in the case of late payment, get contracts written, get a first chase letter, a second chase letter and a letter before action.
Then work out when you are going to send all of these.
We’d suggest a call when a debt is 3 days overdue, a 1st letter 7 days overdue, 2nd letter 21 days overdue and a letter before action on 40 days but the timescales are really down to you.
If you have any contact with the debtor then make sure you make full and complete notes as you can refer to these in any later case.
If you still get no payment then enforce your rights through court action.
- There’s always a story
Have you ever been told that the cheque is in the post?
It’s an old one but a good one and of course often it is not true.
Your debtors will all come up with interesting and varied stories about why they can’t pay but after a while you’ll start to spot a pattern and you’ll realise that this is just one of the behaviours that many people use when it comes to paying bills.
Don’t fall for the story.
Assert your rights and if the debtor genuinely can’t pay then get a firm commitment from them like ‘20% of the outstanding amount by the 14th of next month’.
If they don’t stick to their side of the deal then you know that they don’t have any intention of paying.
And of course, make sure you make those full and complete notes to use later.
- Give them easy methods of payment
A large part of credit control is about removing any possible objection to payment and one way to do this is to give them a simple way to pay.
If you can take a payment over the phone, put it into your system and get a confirmation before you hang up the call then you are going to collect much more money than if you rely upon the debtor to simply make a bank transfer at some random point in the future.
The UTP Group has an excellent Virtual Terminal Gateway that allows you to enter card details through your browser whilst you are on the credit-control call. It’s simple to use, needs no extra equipment and best of all it will increase the amount of cash you are able to collect.
- Customers that don’t pay their debts aren’t customers
This is probably one of the hardest things to get by emotionally when you work for yourself. You think that if you chase a debt then the customer will never buy from you again.
Sometimes debtors will play on this by telling you that they have a massive order for you just round the corner (they haven’t).
The important thing you need to remember is that anyone can get tons of work if they are willing to do it for free. A customer that doesn’t pay their debts is getting your work for free – in other words, they aren’t really a customer, they are a charity or a freeloader or any other number of names you want to give them!
If you constantly have to chase a customer then work out how much the time and expense this adds up to then deduct it from your hourly rate and ask yourself a simple question; is it really worth dealing with them?
People won’t tell you that credit control is 90% about behaviour and emotions.
This is the thing that is a bit of a shock to new credit controllers – it’s about the debtors’ behaviours and the credit controllers’ emotions.
But you need to remember again that this is not personal, it’s business.
If you understand your debtors’ behaviours and you are able to rationalise your emotions then you’ll find that your bad debts fall and your profits rise.
