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Credit Control: 5 Tips for Managing Your Accounts Receivable

woman working on credit control

Credit control is an essential part of the financial management of your business if you offer invoice payment terms to your customers. If you want to improve your cash flow and working capital, the following tips will help you get started.

Why is credit control important?

Granting invoice payment terms to you customers offers several benefits. According to research conducted by Moula, 47 per cent of SME owners offer payment terms because their customers expect them. In addition, 21 per cent of business owners say that offering payment terms enables them to sell more, and 34 per cent say it’s an important selling proposition. 

While offering commercial credit facilitates business transactions, it has its costs. The  research also revealed that 65 per cent of SME customers don’t pay their invoices on time and 63 of SMEs say late payments negatively affect their cash flow. The result of late payments is poor cash flow and a lack of working capital. If these aren’t controlled, it can hinder business growth and even lead to business failure.


Tip number 1: Set up credit policies and procedures

If you don’t have credit policies and procedures in place, your accounts receivable can quickly get out of control. Following credit policies and procedures is the first step in good credit control. These can outline the credit approval process, credit limits, and steps to take when payments are late. Having credit control procedures in place creates a map to help you navigate different situations and avoid emotional reactions to challenges. Find out more in How to Protect Your Business with Credit Policies and Procedures.

Tip number 2: Track your debtor days to monitor credit control

Credit management control starts with measuring performance. One good benchmark is called ‘average debtor days’. This number is calculated by using the equation:

(Average Accounts Receivable/Annual Credit Sales) x 365 days

So if you offer 30-day payment terms and your average debtor days are 39 days, you are getting paid nine days late on average. Once you know this number you can take steps to improve it. Learn more in What Are Debtor Days and How Do You Calculate Them?

Tip number 3: Invoice immediately for products and services provided

If you wait a few days to invoice after delivering products or services it sends the wrong message to your customers. It’s important to maintain the sense of urgency when it comes to getting paid. It’s also essential that the billing information is correct. When invoices are sent to the wrong person or address, it can seriously delay payment and create cash flow shortages.

Tip number 4: Follow up quickly when invoices are overdue

An essential part of commercial credit control is following up when payments are overdue. If you have made calls and sent emails with no result, it can help to use a collection agency for debt recoveries. Collection agencies specialise in motivating businesses to pay outstanding invoices. In addition, outsourcing this function can save customer relationships if you decide to continue to work with the business in the future (which could be on a cash basis). Learn more in Bad Debt and How to Avoid It.

Tip number 5: Outsource credit control

You can skip or reduce the need for the previous four points by outsourcing your credit control functions. While this can be reactive, such as using a collection agency when payments are overdue, there are also proactive solutions that simplify your business finances.

One of these is called Moula Pay. It was developed to help businesses overcome the shortcomings of invoice payment terms and creates a win-win situation in business-to-business transactions.

Moula Pay is a cost-effective way for your business customers to access payment terms without you needing to take the risk of late payments and bad debt. When your customers pay with Moula Pay, you get paid upfront. Your customers enjoy up to 12 months to pay, with the first three months interest and repayment-free.

Become a Merchant today to:

  • Get paid upfront – give your customers excellent payment terms that improve your cash flow.
  • Stop chasing payments – outsource the pain of chasing invoices, and let Moula take the risk of unpaid invoices.
  • Sell more, more often  – giving your customers access to more funds means they can spend more with you.

The experienced credit controllers at Moula Pay quickly analyse customer data to determine the amount of credit available, up to $250,000. In effect, Moula Pay offers outsourced credit control services, so it’s like having an in-house credit controller without the ongoing expense. 

Learn more about how Moula Pay can give your customers great payment terms, and save you from chasing late payments.

Author:

All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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