Credit monitoring and why it is more than a crisis management tool

Whether credit monitoring is managed in-house or outsourced, it’s an underrated practice that is often only maximized when a business goes into crisis mode.

If a large customer fails to pay their bill on time, or a persistent defaulter raises an unwarranted payment dispute, credit monitoring is often widely used for crisis management, rather than bad debt prevention.

UK Business Finance’s Karl Hodson explains why credit monitoring is more than a crisis management tool and how it can be used to get business finances back on track.

What is credit control?

Credit control is a process to verify that the money owed to the company is paid in a timely manner. It protects the company from the risk of non-payment or late payment and can take many forms, from payment reminders, strict credit conditions to personalized payment invitations.

The purpose of credit control is to mitigate the risk to which the company is exposed and instill a respectable payment agreement between both parties. This can range in complexity from payment reminders to the intervention of a debt collection agency once the payment is past due by a specified period of days.

Here are some examples of credit control processes:

Payment reminder templates: Credit monitoring systems, including accounting software with credit monitoring capabilities, often offer payment reminder templates to send personalized reminders to defaulters.

Custom Payment Links: A direct link to the payment portal means customers don’t have to wait for payment details to be sent to them. The link will fill in information such as the amount due and a breakdown of services provided to avoid delays.

Debt Collection: If a payment goes unpaid for an extended period of time and is therefore unlikely to be paid, also known as a bad debt, you can designate a debt collection agency to intervene on your behalf to collect the debts.

According to the Xero Small Business Index, UK invoices are paid significantly later (8.2 days) than Australia (6.5 days) and New Zealand (6.2 days), the longest late payment time. high since August 2020, which means companies are out of pocket. longer as a result of defaulters.

A strong credit management strategy can prevent bad debts and reduce the number of days businesses wait for payments. Agree payment terms beforehand, provide all the information the customer requires to make a payment, reinforce this with a payment reminder, and then acknowledge the payment once it’s made.

Credit monitoring: a lifeline in a crisis

If a business relies on cash from a high-value invoice to pay staff salaries and cover essential bills, alarm bells will ring loud if payment is late. Although it is good practice to spread the risk across multiple clients, rather than putting your eggs in one basket, this is a common problem experienced by small businesses.

Use credit control systems to double down on late payments: point out the late payment, reiterate the terms of the agreement and the consequences, such as interest and debt recovery intervention. Credit monitoring can present a lifeline in a crisis, but to prevent the crisis later, use it to prevent bad debts.

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