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
How the Credit Control Process Works
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:
1️⃣ Gentle Reminder – A polite email reminding them of the due date
2️⃣ Stronger Reminder – A second notice with a firm request for payment
3️⃣ Phone Call – Direct contact to discuss the issue and resolve payment delays
4️⃣ Final Warning – A formal letter demanding payment within a set deadline
5️⃣ 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
3. 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
4. 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