10 ways to improve Cash Collection and Credit Control in your business

10 ways to improve Cash Collection and Credit Control in your business

10 Credit Management Tips

How do you measure your debtor numbers?

Do you track your overall debtor numbers based on DSO (Days Sales Outstanding) or Ledger Ratios (% in various stages of ageing relative to the total balance) or just simply % of total debtors which is overdue. Irrespective of which way you track your debtors here are 10 tips which will help keep your debtors numbers heading in the right direction.

  1. Prompt and Accurate Billing

Eliminate any unnecessary time delay between the supply of good/services and the issuing of the invoice. It goes without saying that the longer it takes for a customer to receive their invoice, the longer it will take for the customer to pay.

Where possible all invoices should be checked to make sure the information on the invoices is as accurate. This check will go a long way to removing payment delays.

In organisations where large volumes of invoices are produced it may not be practical to check all invoices so companies should focus on the ensuring that the processes that exists within the parts of the company which raise the invoice are correct and are adhered to. The following items should form the compliance checklist.

  • Correct customer invoiced
  • Delivery/Service correct on the invoice
  • Correct product/services charged
  • At the correct prices
  • Including discounts (if any)
  • Valid purchase order number quoted (if required)
  • Has the invoice been despatched electronically

Getting these items right can be very challenging and may need several revisits. However it is absolutely vital that invoices are correct.

  1. Does your invoice comply with the customer’s requirements?

Is your department fully aware of all of your customer’s invoicing requirements?

Are you complying with them?

For instance:

  • Where should invoices be sent
  • How they should be delivered (printed, electronic delivery, EDI, file format etc.)
  • Addresses that may be required
  • Are purchase order numbers required
  • Key contacts and contact details if any issues do arise
  • When payments are typically made
  • What is necessary to be included in the payment run
  1. Follow up on known delay offenders.

Set up a category of debtors where there has been a history of payment delays due to invoicing problems (Spurious or not)

Put a system in place where these customers are contacted within a few days of the invoices being despatched. The customers who had genuine reasons for non-payment will appreciate the proactive contact. The customers who have raised spurious delay issues will continue to look for ways to delay however they will have little chance of using the invoices as a delay tactic if you have been proactive.

  1. Make Payment Terms Absolutely Clear

In some cases, part of the problem for slow payment is due to confusion with your payment terms. Be sure that they are clearly and simply stated.

They should be set out in a contract signed by the customer before any products or services are supplied. The payment terms should then be repeated on each invoice.

  1. Constant due diligence on Credit customers.

Assessing new customers for credit is an essential part of reducing the risk associated with giving credit. Why not set dates for diligence checking on existing customers. It will not be practical do this for all customers but it will also not be required for every customer. You know which customers are constantly (Or have recently) started to slow up on making payments. Are there underlying problems with this customer which requires a change in risk status?

  • Verify that you are invoicing the correct legal entity. If you do not have the correct legal entity on your invoice then you are running a real risk that this invoice will not be paid to terms.
  • Run company reports to check for changes in the company such as profitability, changes in directors or director’s circumstances, notes or resignations from auditors, accounts not being filed on time. What is the overall rating assigned to the company and has it changed.
  • Do your homework – Check out their website to assess the size of the company and who they are in business with. Look at blogs, and other online profiles to see if they are receiving any negative feedback from their customers.
  • What are the company’s prospects for growth, decline or stagnation?


  1. Withdraw Credit Facilities from Bad Customers

Calculate the cost to your business of constantly watching and chasing up payments from bad customers. How much interest are you losing by them having your money or worse how much is your overdraft costing you to fund these customers. Be prepared to only deal with these customers on the basis of payment on delivery or in advance. You can offer some incentive for the customer to consider this but at the end of the day your business will not grow if your customers are hanging on to your money.

Be prepared to walk away.

  1. Be Proactive in Reminding Customers when Payments are Due

You need to ensure you are in regular communication with your customers. You should Know Your Customer (KYC) and their payment system. Know who is responsible for the payments, if they have a certain payment date each month, frequency of payment runs etc.

Send gentle reminders before payment runs and call as soon as a payment is overdue to check when payment will be received.

  1. Watch for signs of possible default and have an escalation process.

This will only be beneficial if you know your customer and can see when an event occurs which is out of character.

Examples of out of character events are:

  • A lump payment off account when heretofore payments were made on specific invoices
  • The number of invoices on query increases
  • Payments are being made less frequent and later than before
  • Difficulty in making contact with the customer.

By knowing your customer you will know when things are not right. Spotting a potential problem is the first step. Taking the appropriate action may involve other stakeholders in your business. We recommend that there is an escalation process within your business in which stakeholders and management decide and implement a course of action.


  1. Adhere to a Cut-off Point to Send a Debt for External Collection

As part of the escalation process a cut-off point should be considered as to when a third party will be used to collect the debt. Remember if you have arrived at this point then the relationship with the customer has more than likely gone sour so the quicker you move the debt to a third party the greater your chances of getting paid.

You should consider if there are any special instructions to the third party agency. It goes without saying that all of the recovery agencies are not the same some have a heavy handed approach from the start whereas others have developed methods of approaching debtors in a professional manner which persuades the debtor to pay before any court action is threatened.

  1. Use the write off process to learn lessons.

When all actions to recover the debt have failed and the most sensible course of action is to write off the debt, you should use the write off process as a means to learn lessons.

We recommend that write offs are only completed after the account has been discussed by the relevant company managers in which a proposal document is presented with the facts of how the debt arose and became uncollectable.

You should use this opportunity to make recommendations as to how to avoid this in the future. Such as acting sooner, investing in new systems or software, additional staff etc.

The proposal should be costed setting out the amount of future sales that will need to be generated to recover the cost of this debt. The next time you are faced with a customer who is in default you can use the write off as a means to act sooner and hopefully avoid another bad debt.