Credit control – are you managing your risk? 

The UK may be on a path to recovery, but the impact of the Covid-19 pandemic will continue to be felt across the country. Even if your business or industry has emerged reasonably unscathed, the same might not apply to your customers.

While there had already been a growing issue of late payments in recent years, businesses are now facing a new and unpredictable environment. Research by QuickBooks reveals that over 20 per cent of small and medium business owners believe the problem of late payments is at its highest level since the beginning of the pandemic.

64 per cent of those surveyed fear that late payments could result in their business failing in the near future, but could this be avoided with better credit control and risk management?

Do you know who hasn’t paid you? When was the last time you reviewed your credit limits? Do you have a system in place which will help to identify patterns and problems? Here’s what you need to consider to ensure you have an effective credit control process.

Review your credit check process
While they will no-doubt have adapted to new ways of working and conducting business, you must be proactive in having conversations with your customers and partners. How have they been affected by the pandemic? How might their situation affect your business?

This information will help you reassess your own credit limits in line with current market conditions and your level of tolerance for late payments. Do your cashflow needs allow you to stagger or delay payments?

A survey last year revealed that a third of respondents were being paid more than a month late, and 28 per cent had suffered from bad debt – with an average of £21,590 being written off by businesses.

With these figures in mind, how are you factoring bad debts into your cashflow forecasting? Can you afford to not be paid on time and how long can you go without getting paid? Do you know if you can afford the risk?

Moving on post-Covid
As the UK economy continues to rebound and businesses reopen, the Government is starting to withdraw support schemes.

We are now in the last weeks of the Coronavirus Job Retention Scheme. Latest figures show that there were 484,000 employers with 1.6 million staff on furlough on 31 July 2021 – the lowest level since the start of the pandemic.

The Insolvency Service, part of the Government's Covid-19 business rescue package that helped viable business avoid being forced into insolvency, is also being phased out from 1 October 2021.

How will withdrawal of Government support impact your customers? Can they afford to pay you as they begin to return Government loans? It is important you create scenarios based on these predictions so that you can react quickly before things move into danger territory.

Make use of available technologies
Understanding your level of risk when it comes to credit control does not need to become a mammoth task. Most invoicing software, if used correctly, can flag potential issues and patterns to you before you enter into an arrangement which may see you offering too much credit.

Enabling customers to pay via online credit and debit card payments as well as BACS transfers will also make the process faster. Automated invoicing including the automatic dispatch of invoices and reminders will save you time, ensure your clients have received the invoices and remind them of payment deadlines.

By automating payment methods and your credit control procedures, you can also save time, leaving you or your team to focus on the more personal aspects of the process. Considering the pressures of the last 18 months and potentially difficult conversations and decisions which must now take place, this human element will be more important than ever.

Of course, given the tough climate businesses have faced, you may feel you wish to be more lenient with late payments from your customers. However, for this to work, you must understand your own capabilities. Be understanding, but know your limits.

Fiona West Westwood