Credit Control
Credit control is the process of managing a business's outstanding invoices and ensuring customers pay on time. It helps maintain healthy cash flow, reduce bad debts, and minimize financial risks. Businesses that offer credit terms (e.g., allowing customers to pay after receiving goods/services) need a strong credit control system to avoid cash shortages.
Key Functions of Credit Control
Assessing Customer Creditworthiness – Checking if customers can afford to pay
Setting Credit Limits – Deciding how much credit to offer each customer
Invoicing & Payment Terms – Sending invoices promptly and setting clear due dates
Chasing Late Payments – Following up on overdue invoices
Managing Bad Debts – Handling unpaid invoices and potential legal actions
Best Practices for Effective Credit Control
Run Credit Checks Before Offering Credit – Avoid risky customers
Set Clear Payment Terms & Enforce Them – No exceptions
Use Accounting & Credit Control Software – Automate invoicing and reminders
Monitor Debtor Days – Aim to reduce the average time it takes to get paid
Maintain Good Customer Relationships – Clear communication prevents disputes
Act Quickly on Late Payments – The longer an invoice is overdue, the harder it is to collect
Benefits of a Strong Credit Control System
Improved Cash Flow – Ensures regular income and avoids cash shortages
Reduced Bad Debts – Prevents financial losses from unpaid invoices
Stronger Customer Relationships – Encourages clear, professional payment practices
Less Stress & Admin Work – Automation saves time and effort
Step 1: Assess Customer Creditworthiness
Before extending credit, businesses should evaluate a customer's ability to pay.
Credit Checks – Use credit agencies (Experian, Equifax) to check financial history
Trade References – Ask for references from suppliers they’ve worked with before
Review Financial Statements – Check company balance sheets and cash flow
Tip: New customers or those with poor credit history may be required to pay upfront
Step 2: Set Credit Limits & Payment Terms
Decide how much credit to extend and define clear payment conditions.
Set a Credit Limit – Based on customer size, payment history, and financial health
Define Payment Terms – Common terms include:
30 Days (Net 30) – Payment due within 30 days of invoice date
7 Days (Net 7) – Faster payments for smaller businesses
Due on Receipt – Immediate payment required
Tip: Offer early payment discounts (e.g., 2% discount for payments within 10 days) to encourage timely payments
Step 3: Invoice Promptly & Clearly
An effective invoice should:
Be sent immediately after goods/services are delivered
Include all necessary details – Amount, due date, payment methods
Be easy to understand – Avoid confusion that could delay payments
Tip: Use cloud accounting software like Xero, QuickBooks, or Sage to automate invoicing
Step 4: Monitor Outstanding Payments
Regularly track invoices and identify overdue accounts.
Aged Debtors Report – Lists unpaid invoices by due date
Automated Reminders – Send reminder emails/SMS before the due date
Follow-Up Calls – Contact customers directly if payments are overdue
Tip: Use credit control software (e.g., Chaser, Satago, or Xero) to automate reminders
Step 5: Chase Late Payments & Escalate When Necessary
If a customer misses a payment deadline, follow a structured approach:
Gentle Reminder – A polite email reminding them of the due date
Stronger Reminder – A second notice with a firm request for payment
Phone Call – Direct contact to discuss the issue and resolve payment delays
Final Warning – A formal letter demanding payment within a set deadline
Legal Action or Debt Collection – As a last resort, use a debt recovery agency or take legal action
Tip: Charge late payment interest (e.g., 8% + Bank of England base rate) on overdue invoices
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