Having worked in debt management and credit control for over 25 years RCC Ltd have a wealth of experience when it comes to effectively managing credit arrangements with your client’s.

You may have done all the correct due diligence and credit checks necessary to establish your client’s ability to pay, and put into place a set of terms and conditions which you hope provides a deterrent towards non-payment or at least gives you the reassurance that you have legal ground should things go wrong.

So what else can you do to ensure the credit arrangements you have in place are managed well and ensure a mutually profitable future relationship between you and your clients.

Here we list our top tips….

  1. Adjust your payment terms according to the client relationship. If it’s a new client or newly established business you are offering credit to, there is no way of knowing how they are managing their cash flow and creditors so it would be prudent to put in place shorter payment terms. Most clients will understand the importance for you to manage your own cash flow so it shouldn’t come as a surprise to them that payment terms may be less than the average 28 days depending on the nature of your business.  As your relationship with the client becomes more established and trusted, you will feel more confident in extending your payment terms.
  2. Make sure your T&C’s are fit for purpose. Don’t be tempted to simply plagiarise one of your competitors T&C’s or adopt a free template download from the internet.  Make sure you take proper legal or professional advice to make sure your T&C’s match your business need and will keep your cash flowing.

For instance, if you were to incur legal or court expenses in chasing a non-payment, do your T&C’s state that you reserve the right to pass on these costs to the non-payer?  Make sure your T&C’s adequately protect and represent you and your business.

  1. Effectively deal with requests for extra credit. Or a request for extra services above what’s been agreed or normally supplied. This is usually a fishing expedition to see how lenient the credit terms actually are and hardly ever ends well. The way to counter such requests is to tell the client that a full ‘hard’ credit application will need to be processed first. This will usually act as a sufficient deterrent without having to give a direct “no”.  Alternatively, request full payment upfront for anything requested outside the norm’.
  2. Go a step further than your usual credit checks and due-diligence. Besides your normal credit checks, it often pays to also get some trade references from other suppliers your client is using; even if they happen to be one of your competitors. In a niche or local industry, regular non-payers will do the rounds with suppliers and the same clients will often appear in more than one debtor report on a balance sheet.  If you can’t check the situation or relationship with your competitors, shorten the payment terms or request payment upfront until you have built up a good relationship with this client yourself.
  3. Operate firm credit control procedures. However established your relationship is with your clients, everyone will appreciate cashflow is key in any business.

It’s therefore wise to have routine and consistence credit control procedures in place. For instance, the sending of regular account statements to clients, even when payments are not overdue, will highlight earlier to your client if they are missing an invoice.  Make sure credit control is a priority in your company and don’t hold back on resources to make sure it is implemented correctly. Do not allow clients to go over their credit limits – this isn’t doing anyone any favours in the long run!

  1. Follow through on non-payments immediately. Once an invoice is overdue do not hesitate in chasing it. If there is no response to a written request for payment, follow it up with a phone call.  If necessary do it yourself rather than leaving it to one of your staff who may be a little reticence in applying pressure. Ensure you get an expected date of payment from your client and follow up again immediately if payment doesn’t arrive when promised.
  2. Enforce the conditions of your T&C’s. They are there for a reason! If your clients’ business is reliant on the services provided by you, stick to the credit limits agreed and don’t be frightened to withhold further services without seeing a payment first.  Furthermore, don’t put off adding statutory interest to your invoices (and any legal expenses if applicable) to act as a deterrent. If your relationship has been a good one, in all likelihood it will continue once the tough time has passed. Once a client starts to operate outside your agreed T&C’s ask yourself can you really take the risk in continuing to work with them?
  3. Cut your losses sooner rather than later. If the answer to the question in number seven above is a resounding “no”, do not hesitate in either insisting on an immediate change to your credit arrangement or in bringing the relationship to a close. There is trouble ahead, and time would be better spent in looking after the clients who want to do business with you.

For more information on credit arrangements, a free consultation or just a general discussion, please contact us on +44 (0)20 8202 3364.