With many customers experiencing a drop in their disposable income, it’s more important than ever that firms have a grip on getting paid. Aaron McLeish advises on credit control processes. 

The UK economy is under pressure, with rising interest rates and people having less disposable income to spend. As they prioritise essential spending, it is likely to continue in the future as people become more mindful of their finances.

Reactive spending on plumbing and heating is not a luxury, it’s essential! If the plumbing and heating were to become faulty in one’s home, then people would prioritise getting this fixed to ensure they have water and warmth. This is potentially good news for plumbing and heating businesses, because you should be able to weather the economic storm IF your business is in good shape. 

Credit control systems
One way to make sure your business is in good shape is to ensure that your cash flow is on point, and for this you need good credit control systems and processes. Credit control is the practice of making sure your customers don’t take too long to pay you. 

The importance of having a credit control system in place cannot be underestimated. It helps businesses to manage cash flow, avoid late payments from customers, and keep on top of their numbers to ensure that day-to-day financial commitments are met. Without sound cash flow management, many businesses would quickly find themselves in financial difficulties.

Here are some tips to improve credit control in your business.

1.  Be clear on your pricing and payment terms from the outset. Communicate this at the start of the relationship and make sure they are accepted by your customer before doing any work. Once they have accepted, go and do the job/book in the works. Requesting payment upfront or at the end of a site visit for domestic customers should be the main aim. When getting your car or van serviced, payment is due prior to driving off, the same should be the case for plumbing and heating firms. 

2.  Make it easy for the customer to pay. Have a variety of means for a customer to pay you. That could be a bank transfer, cash, cheque, or PDQ. Just make it easy! As the price and terms have been communicated before the work commences, don’t leave the site until payment has been made (for commercial customers you may offer payment terms, but it’s important that you receive a purchase order or some kind of confirmation from a person of authority that your payment terms will be met).

3.  Vet their suitability. If you are working for new businesses, you may want to consider vetting the customers prior to doing the work. This could be via an online credit referencing agency. In addition, you might want to request that a business credit application form is completed, just like you would have completed a form when setting up merchant accounts. The ideal scenario for business customers is to have a personal guarantee from the company director/shareholders – this could form part of your credit application form.

4.  Payment upfront. In regards to domestic customers, make sure that if they are a new customer you ask for payment upfront. This will help you to avoid potential problems further down the line. If carrying out large works, obtain deposits. 

5.  Make sure your invoices contain the relevant information. If you don’t include the required information on your invoices then you are creating a hurdle for the customer and the chances of being paid on time will be dramatically reduced. Visit Gov.uk to see what legally needs to be included on your invoices.

6.  Chase late payments automatically. Use your accounting software or CRM to send out automatic reminders to customers who haven’t paid you. These automated emails need to escalate in their pressure to get the customers to pay, with the final warning being court action or a debt recovery service. 

System success 
Ensuring your customers pay you on time is critical to managing your cash flow and your success. Implementing a credit control system can help make this process easier and less stressful for everyone involved. By following these tips, you can set up a system that works for your company and helps you get paid what you’re owed in a timely manner thus reducing bad debt.

As the director of Together We Count, Aaron McLeish is an accountant specialising in the plumbing and heating sector. Aaron is also author of The Quote Handbook. 

Visit the website here:  www.togetherwecount.co.uk