There are a number of factors that contribute to running a successful business. If you invoice other businesses, ensuring that you are paid on time will play a critical part as this affects your cash flow, revenue and business profitability. Having a robust credit control process will ensure that your business runs effectively and is not subject to risk.

Here's what we'll cover in this guide:

  1. What is credit control?
  2. Why is credit control important?
  3. How to spot credit risks to your business
  4. 7 tips to create an effective credit control process
  5. How to collect debts

What is credit control?

Credit control involves the process of checking and monitoring a business’ customers and suppliers to ensure that credit is not extended to at-risk or non ‘creditworthy’ customers, to reduce the likelihood of late payments and bad debts. 

Why is credit control important?

How to spot credit risks to your business

When you work with other businesses, it's important to identify credit risks as part of your credit control process, before you enter into a contract or agreement with a customer, partner or supplier.

Running company credit checks will identify any potential risks, so you can make well-informed decisions about whether to work with a company, how much credit you should extend, and whether you should offer long payment terms. 

A company credit check will allow you to see the business credit score, credit limit and credit profile. This is an indication of the financial health of the business and the maximum amount of credit you should extend to them. It will also give you an understanding of how the company pays their existing partners, by showing you whether they historically pay on time, late, or very late. You will be able to see any legal notices, such as a CCJ or Gazette Notice, that indicate a business is in financial difficulty, 

7 tips to create an effective credit control process

To create an effective credit control process, ensure to include the following tips. 

1. Communicate payment terms clearly

When invoicing your customers, include clear payment terms to ensure there is no ambiguity on when the payment is due. You should include the following information in the invoice: 

  • The total amount owed
  • The latest date the invoice is to be paid by 
  • The payment method
  • Any penalties for late payment of the invoice 

If you’re unsure what to include, use our invoice template


2. Remind your clients their invoice is due

Sending invoice payment reminders is an effective way to ensure your invoice is paid and on time. These serve as gentle prompts to your customers that their invoice is still outstanding, so they remember to take action. You can use an invoice software to automate the process to save time. 


3. Automate your credit control chasing

Chasing your outstanding invoices is an important part of your business’ credit control process, but this can be time consuming. By automating your credit control chasers, you can streamline the credit control process and ensure that each invoice is followed up and chased accordingly. 

You can use invoicing software to automate your chasers, such as Xero, Quickbooks, or Sage

If your customers have still not paid despite automated chasers, then you may need to take stronger action where necessary. Explore your options on actions like civil mediation or issuing statutory demands if in doubt.


4. Prioritise bigger debts

If you have multiple late invoices from your customers, try to prioritise your largest debts first, to make credit control of your ledger book more manageable. This will help to protect your cash flow if you ensure that your biggest debts are paid on time first of all. 


5. Prioritise customer relationships

Managing your customer relationships is important for credit control. When you credit check the businesses you work with, you’ll be aware of any challenges early on. This means you can open up communication with your customers, working to resolve any issues early on. If you maintain strong customer relationships, it will also make any communication on reduced payment terms or credit more manageable. 

If you do have any concerns about late payment with a customer, tailoring your approach could help to be respectful of their individual circumstances. This will help to foster a good relationship, increasing the likelihood of payment, and reducing the risk of upsetting and losing a customer. 


6. Monitor and check company credit scores 

Monitoring the business credit profiles of the companies you work with is an effective and quick way to implement a credit control process. With Capitalise for Business, you can check the credit scores of multiple companies in one dashboard, to effectively stay on top of your credit control. 


7. Ensure you have a debt recovery procedure in place

Having a clear debt recovery plan in place when a customer’s invoice becomes significantly overdue will help you to improve the process. Sending reminders and implementing consequences for late payments (such as additional fees) could be part of your debt recovery procedure. 

If you need to take legal action, inform the customer of your intention to do so if the debt is not paid within a specific period of time. You can find out more about the procedure for debt recovery from the government website.

How to collect debts

If a client hasn’t paid your invoice 30 days past the payment date, and has made no communication with you, it may be time to consider collecting the debt. You could choose two of the below options for this.  

Legal action

You can take legal action for an overdue debt either by yourself, or by hiring a solicitor. 
If you wish to take legal action yourself, you can make a court claim for money online.
However, taking legal action yourself can be time consuming and potentially complicated, so it might not be the best option if you are unfamiliar with the process. 

If you take action by hiring a solicitor, they will start legal proceedings by sending a letter of claim. This will include reference to the debt you are collecting, any previous communication to attempt to receive payment, relevant documents, and a date a response will be required by. 

This letter of claim could be enough to prompt the debtor to pay the debt, or you may need to carry on with legal proceedings. Your solicitor will guide you through the process.

Debt collection

You could pass the responsibility of debt collection over to a debt collection agency. This could be a beneficial option for you if you are concerned about time and resources from your business being used to take legal action. 
Ensure that the debt collection agency you choose is Financial Conduct Authority (FCA) registered as this will mean they will follow all the industry compliance requirements. 
The debt collection agency should work to resolve the issue amicably and maintain a good relationship with the client. 

Taking legal action should be a last resort if the business continues not to pay or corporate and communicate. It will likely damage the client relationship, so having an effective credit control process in place first of all, will help to mitigate conflict down the line.