Credit control for small businesses, a practical guide

A strong credit control process ensures invoices are paid on time and reduces the likelihood of bad debt. It gives you the tools to maintain healthy finances, manage risk, and build more reliable business relationships. This guide covers everything you need to know about credit control and how to implement an effective system in your business.

What is credit control?

Credit control is the process of managing how and when your customers pay you. It involves assessing a customer’s financial stability before offering credit terms and then monitoring their payments to ensure they meet those terms.

Effective credit control includes:

• Assessing the financial health and payment behaviour of customers and suppliers

• Setting clear payment terms and sensible credit limits

• Tracking invoices and following up promptly on overdue payments

• Managing debt recovery if payments are not made

Ultimately, the purpose of credit control is to protect your cash flow, reduce financial risk, and ensure your business continues to operate efficiently.

Why does credit control matter?

Credit control is essential for any business that invoices its customers. Even with great sales, if cash isn’t coming in when it should, everything from paying suppliers to funding new opportunities becomes harder. Strong credit control ensures payments arrive on time so you can cover costs, invest in growth, and avoid the stress of chasing late invoices. By setting clear terms, checking customer reliability, and staying proactive with communication, you protect your business from bad debt and build trust with the people you trade with.

Building a credit control process

It's important that your business should have a full credit control process. You could write this process down and share it with the relevant employees. this ensures that everyone on your team knows how to manage payments and deal with overdue invoices.

Your process should cover:

1. Credit checks, explaining when a customer’s credit score should be reviewed and how the results will influence your decision to offer credit.

2. Credit limits, setting out the maximum amount of credit you are willing to extend to each customer based on their risk profile.

3. Payment terms, clearly defining how long customers have to pay, such as 30 days from the invoice date, and what payment methods are accepted.

4. Invoice procedures, detailing how invoices are created, sent, and tracked to ensure accuracy and timely delivery.

5. Follow-up procedures, outlining when reminders are issued and how your team will communicate with customers about overdue payments.

6. Escalation processes, specifying when late accounts should be referred to debt collection services or legal action should be considered.

A structured credit control process creates internal efficiency and ensures customers are treated fairly and consistently.

How to identify credit risks

Before working with any new business, you should always run a company credit check. This helps you understand their financial health and make informed decisions.

A credit check will show:

• The company’s credit score and recommended credit limit. This indicates the level of risk when working with the customer. A high score shows a business is low risk and likely to pay on time, while the recommended credit limit shows the maximum amount you should extend to that customer.

• Their payment history, which shows how promptly they pay other suppliers and partners. You’ll be able to see whether they typically pay on time, late, or very late.

• Any County Court Judgments (CCJs) or legal notices. The presence of legal notices suggests financial trouble and is a strong indicator of high credit risk.

• Financial data like company age, turnover, and director history.

With a Capitalise account, you’ll be able to access all of this data in one report. With a paid account, you can check multiple companies in and use our Credit Risk Manager tool, which allows you to connect your cloud accounting software. This means you can see your outstanding invoices alongside a customer’s credit report, so you can immediately identify which invoices to prioritise and receive alerts to new risks.

7 practical tips for effective credit control

Here are seven practical tips you can build into your credit control processes:

1. Communicate payment terms clearly.
Make sure your payment terms are always stated in writing, both in contracts and on every invoice. Clearly outline the due date, accepted payment methods, and any late payment charges so there is no confusion from the start. To check that your invoices include everything they need to, you can read our article on how to write an invoice.

2. Send reminders before and after the due date.
Don’t wait until an invoice is overdue. Send polite, automated reminders a few days before payment is due, then follow up promptly if payment hasn’t been received. Consistent communication helps prevent delays and keeps customers accountable.

3. Automate your process.
Use accounting software such as Xero, QuickBooks, or Sage to automate invoicing, reminders, and credit control reporting. Automation saves time, reduces errors, and ensures nothing slips through the cracks.

4. Focus on the biggest debts first.
Prioritise chasing your largest or most overdue invoices to protect your cash flow. Recovering high-value payments quickly has the greatest impact on your financial stability.

5. Maintain good customer relationships.
Approach credit control professionally and with empathy. If a customer is experiencing difficulties, try to understand the situation and agree on a payment plan that keeps cash flowing while preserving the relationship.

6. Monitor company credit scores.
Keep an eye on the financial health of your customers by checking their credit scores regularly. With Capitalise, you can receive automatic alerts when a customer’s risk level changes, allowing you to respond before issues escalate.

7. Have a debt recovery plan.
Be prepared with a clear process for overdue payments. This may include sending a final demand, adding statutory late payment fees, involving a debt collection partner, or pursuing legal action if necessary. Knowing your escalation steps helps you act confidently and consistently.

How to handle late payments

Even with excellent credit control in place, late payments can still happen. The key is to act quickly, stay organised, and follow a consistent process. You can start by sending a polite reminder a few days after the due date to confirm the customer has everything they need to make payment. If there is no response, follow up by email and phone to escalate the urgency. Applying late payment interest or charges, as stated in your terms, can encourage faster settlement. If the customer is experiencing genuine short term difficulty, offering a temporary repayment plan may help recover the money while preserving the relationship.

If payment still remains outstanding, you will need to escalate. One option is to work with a Financial Conduct Authority (FCA) registered debt collection agency. This allows a specialist to take over the chasing process on your behalf, saving your business time and preventing internal resources from being tied up. Reputable agencies focus on resolving matters amicably and maintaining good relationships where possible.

Alternatively, you may choose to pursue legal action. You can start the process yourself by submitting an online court claim for the unpaid amount. If you are unfamiliar with the legal system, you might want to hire a solicitor to do this for you. They will issue a formal letter of claim, summarising the debt, previous communication, supporting documents, and a deadline for response. In many cases, this letter is enough to prompt payment. If not, your solicitor will guide you through the next legal steps. Legal enforcement should be a last resort, as it may damage the customer relationship and incur additional costs. A strong credit control process helps reduce the likelihood of disputes reaching this stage, while ensuring you have clear actions to take if they do.

Use Capitalise to strengthen your credit control

Good credit control protects cash flow and helps your business operate with confidence. Capitalise gives you the insight and tools you need to make faster, more informed decisions about who you trade with. With an account you can:

• Check your own business credit score to understand your financial standing

• Review the credit risk of customers and suppliers before offering terms

• Receive alerts when a company’s risk profile changes

• Manage all your credit insights in one simple dashboard

With the right information at your fingertips, you can reduce uncertainty, take action sooner, and keep your business moving forward.