What is Credit Control?

One of the most important (and challenging) aspects of being self-employed is managing your income and outgoings properly. It’s essential that you do this in order to keep your business afloat and profitable, which is where the term ‘credit control’ comes from.

If one of your customers buys a good or service from you with the promise of paying you at a later date, then they’re getting ‘credit’ from you which they need to reimburse you for. Failure to ensure this happens means you aren’t controlling your incomes and outgoings effectively, potentially putting your business at risk.

To avoid this happening and ensure your business is successful, it’s vital that you set up good credit control procedures to keep things running smoothly.

What are some tips for good credit control? 

Here are a few examples of simple, easy to set up credit control procedures that will help to ensure your business is a successful one.

Further checks

If you’re unsure about whether or not you can trust a company to give them credit, you can use Companies House to view their accounts. You can see if the accounts look unhealthy or suspicious, and use this information to help you decide whether or not they’re likely to pay your credit back on time.

What’s more, you can ask businesses like Experian or Equifax to assess your potential borrower’s reliability before you decide to give them credit. 

Customer credit application forms

You should always ask a new customer to complete a credit application form when they request credit from you. The form should contain the following information:

• The full name of the business, who owns it and who runs it
• Any other names the business trades under
• How much credit they want from you
• Bank account details including account name, sort code and account number
• Delivery and invoice addresses
• Registration number if they’re a limited company
• Consent for a credit reference check to be done
• Consent for bank references to be done
• At least two trade referees

Agree terms and conditions

Asking your customer to agree to terms and conditions in writing before you agree to give your goods or services to them is a good way to protect both you and your business. You should cover the following areas in your terms and conditions:

• Rules on how the customer should pay you
• The price of the goods or services you’re giving them
• Details of the goods and services you’re providing
• Delivery arrangements
• The right to charge interest on late payments, as well as your right to claim costs for any debt the customer owes you
• Your right to record information about whether the customer pays on time with credit reference agencies

Unpaid invoices

Trying to chase up an unpaid invoice can be annoying, but there are steps you can take to ensure you get paid.

• Write to the customer as soon as the time limit for payment has passed. Ask for payment within a fair, set period, like 7 or 14 days from the payment being missed. If you need help making a letter, you can use our sample letter for Debt outstanding after reminders.

• If the customer still hasn’t paid after you’ve given them a set period to pay the money, then you should send them a final reminder stating that they owe you payment, and state that they won’t receive any more credit until you’ve received it.

• In the circumstance that the customer still doesn’t pay after you’ve sent them a final reminder, then you may want to consider going to court to get the money; here’s the pre-action protocol for debt claims that you’ll need to follow.

• Remember that under the Late Payment of Commercial Debts (Interest) Act 1998 you may be entitled to charge interest or compensation for your late payment.

Disputes over payment

Payment disputes can crop up occasionally when you give a customer credit, and when they do they can make credit control difficult. You can find out more about the type of payment disputes that are likely to crop up, and how to deal with them, by visiting our payment disputes page.

Taking further action

If you’ve still not received payment, then there are other routes you can take to recover the money you’re owed. Two of the most common methods you can use include using a debt collection agency or using a solicitor.

Debt collection agency

Using a debt collection agency is generally cheaper than using a solicitor, and they’ll visit your customer’s place of business on your behalf to retrieve the money you’re owed, sparing you a potentially unpleasant situation if your relationship with your debtor isn’t great.

Debt collectors will also generally be able to deal with all aspects of court action on your behalf too, and will usually be able to deal with tasks like serving legal documents, tracing customers etc.

If you choose to use a solicitor to help you recover your credit, then there are advantages to doing this that you might not get using a debt collection agency. The main one is that they’ll only use legal action to recover your debts, so you may be able to recover them quicker than you would if you used a debt collection agency.

The downside of using solicitors is that they may not visit your customer on your behalf, and chances are they’ll be more expensive than a debt collection agency.

Going through the County Court

Another option you could use to recover money you’re owed is through a County Court claim – you can find out more about how to do this here.

Bankruptcy or winding up petitions

Are you owed more than £5,000?

If so, you have to option to consider petitioning for your customer’s bankruptcy. This may result in the customer’s assets being sold to pay their creditors. Can find out more about bankruptcy and winding up petitions here. 

If you’d like help with your debts, why not give us a call for free, no-obligation debt advice on 0800 316 1833 ? Our opening hours are 8am to 8pm Monday to Friday, and 9am to 3pm on Saturdays.