It will be obvious to any business owner that the answer to this lies in striking a balance somewhere between the two extremes of being overly aggressive or too passive in your credit control methods, some companies I have had personal dealings with have sent me demanding reminders for payment even before the payment deadline has been reached which just makes me dislike that company. Indeed despite my own beliefs I also made them wait until the last possible moment in some attempt to redress my annoyance, conversely there have been occassions wher I have genuinely forgotten about an invoice to pay and therefore it only got paid when I recieved a reminder. Without doubt bieng excessively aggressive will leave your client base in tatters and being too passive will leave your business floundering as your cash flow dries up completely, the problem presented by credit control to the small business is self evident.
The remedy.
If only there was a magic bullet for this, however there is not a universal answer that fits everyone, really there exists a range of solutions and some will fit better for you than others in your efforts to keep cash flow positive and making sure your clients are smiling.
Outsourced Credit Control
Outsourcing your credit control will be an answer for some, contacting out your invoicing may relieve some of the worries, for large companies this can be a useful solution, however smaller businesses tend to have closer ties with their clients and outsourcing such a critical process as credit control could be harmful, the relationship that exists between your client and you means you may know of reasons why you should hold back collecting for a while or not, this control os lost with outsourcing and while for large entities that is ok, i counter that for small ones it is not.
Software Solutions For Credit Control
Software for credit control offers a controlable and scaleable solution for small businesses, the benefits include the reliabilty of account due information and reminders, lack of simple errors destroying carefully crafted relationships and of course it will not forget things. Luckily the business can have complete control over the software allowing for changes or fluctuations with one or many customers and it will happily cope with what you ask of it, no moans or groans it just works. Without doubt software solutions can be cost heavy but my experience shows that for even quite small businesses there are affordable software or online packages on the market that will not only do everything you need them too but will also be well within your budget, all you need to be wary of is makin certain that any software you invest in is scaleable, your company will grow and you don’t want to have to change the sytems infrastructure you are using because your current solution can not grow with you.
Selling Invoices
Invoice factoring is a financial arrangement between yourself and a financial organisation (the factor) whereby you basically sell your accounts receivable to the factor for an immediate payment usually a percentage of the total accounts due. For example a client has purchased services from you for $5000 and they are billed immediately with payment terms of 60 days, you need the cash flow so instead of harassing your client you sell the account to the factor who pays you the account less a percentage in this case, 10%, so you actually receive an immediate payment of $4500. You no longer have to think about this account, the factor bears all responsibility for collecting the account and the debtor pays the original $5000 direct to the factor to settle the account. This is a useful service for companies that have to give longer payment terms but cannot afford the lack of cash flow; although they lose some income in commission to the factor they get immediate payment and never have to worry about that debtor again.
Although each solution has attractions credit control software offers the most flexible solution without giving control to a third party, if you cannot afford dedicated in house credit control then software is the best solution for you. whther you choose to manage your credit control this way or not ultimately is not as important as managing it in some way, without management of this critical business function your business is doomed from the start.
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