Credit Control 2.0: The Ultimate Guide to get Paid Faster

White Paper

Many businesses do not actively manage their credit control neither do they build an effective credit control team. As a priority, businesses would rather improve their sales and turnover than look at their accounts receivable. What many companies ignore, at their peril, is that even large growth in turnover cannot save them from an inevitable demise, if their customers do not pay for their goods or services. A positive cash flow is THE most important financial metric to ensure that you stay in business.

For smaller businesses, this is especially important as they rely heavily on working capital but neglect the fact that their accounts receivable are one of their biggest assets. For some businesses, accounts receivable can make up as much as 37% of their assets. Download this whitepaper to read about the importance of credit control and learn about the best credit control tools.

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Warning signs of increasing outstanding debt are overlooked as many companies ignore late paying customers. Let’s face it, no one likes to remind their customers that they have not paid their invoices. It might be that you, like many others, feel uncomfortable reminding your customers. It could also be due to a lack of resources where business generating departments get the greatest share of employees and funds. Approximately 85% of SMEs complain about late paying customers and up to 2,000 companies go out of business each year due to late payment of invoices. At Satago, we think it’s time to come up with an effective credit control process that is central to the financial viability of every company. The harsh truth is that people don’t pay you unless you remind them. With this in mind, let’s streamline your debtor management.

Why companies don’t pay on time

There are many reasons why customers delay their payment. Here are some of the most common ones:


One major reason, that we hear repeatedly, is that your customers are confused about your payment terms. This happens if your payment terms are not stated properly in your T&Cs, or if they are not specified in the footer of your invoices. Your customers might believe that they are paying within your terms when in fact their payment is long overdue. Often, there is also confusion about where payments should be made.

Clients find excuses as there are no consequences

Unfortunately, this kind of late payer is incredibly common. There are, and always will be, people who try to squeeze as much for themselves without considering others. This type of customer normally comes up with unsubstantiated excuses for delaying payments. They do this to improve their cash position as there are no consequences. They know that very few companies charge or enforce late payment fees or even revert to the courts to get paid.

>strong>People assumed they have paid an invoice

This has probably happened to most of us before. These customers will usually pay very quickly once you send them a reminder. In most instances, you can expect a genuine apology for the late payment and it is unlikely that it will happen again.

Your customer’s accounting department is disorganised

Some companies have serious problems with their accounting department. We have come across several companies whose accountants/bookkeepers were so disorganised that they were unable to stay on top of their accounts payables. This type of late payer is very frustrating but the best approach is to follow up regularly and bring your unpaid invoices to their attention.

Financial difficulties

Some companies have serious financial difficulties and while this kind of late payer is difficult to handle, your only course of action is to reach out and try to agree a schedule of payments over an extended period. Of course, your best course of action is to avoid doing business with companies experiencing financial difficulties.

For most of those excuses, there is not much to worry about, as those are rather 'favourable evils' of late payments. As long as you have a proper credit control system in place, which ensures that you stay on top of your accounts receivable, you will be better prepared to face most eventualities. Dealing with customers who deliberately hold back payments, however, will always be more challenging. If in addition, your customer is a large company, you might find that they have spotted a risk free and zero interest loan opportunity.

Automation – the secret weapon of efficiency

Cloud software that automates menial tasks is proliferating as more and more 3. Automation – the secret weapon of efficiency companies discover their benefits. One famous marketing slogan by Apple was “There is an app for that”. This doesn’t only apply to the Apple app eco-system anymore. Many accounting software provider embrace software add-ons as a way to offer better solutions to their customers that go beyond basic accounting features.

Credit control is still very much a labour intensive process but technological developments, over the last 10 years, have meant that many repetitive and laborious tasks can now be automated. This has given credit control departments the ability to track outstanding invoices, send out reminders and statements and create age debtor reports. By using these tools, you can save valuable time and only focus on debtors that require more attention.

On average, SMEs spend 10 hours per week chasing customers for payments. Most of that time is allocated to monitoring aged invoices and sending out invoice reminders, communicating back and forth with your debtors and following up with phone calls. Automation will not stop you from having to pick-up the phone but it will significantly diminish the number of clients you must contact and phone calls you need to make. In most cases, invoice reminders are all that is needed to get your debtors to pay you.

Why would you want to approach all debtors equally if only a handful require a more proactive chasing approach? Add-ons for accounting software have evolved to a level where automatic emails feel and look as if they had come directly from you. And were you need to be more forceful, you can change the tone and frequency of the reminders.

The ultimate credit control approach

1. Send invoices asap

If you don’t send an invoice, don’t expect to get paid. That sounds quite obvious right? Well, the problem is that an alarming number of businesses do not send invoices to their customers in a timely fashion. Every delay in sending out invoices negatively affects your cash flow.

Best practice suggests that you phone your client the moment you sent out an invoice. This increases your client’s awareness of the newly issued invoice and gives you an opportunity to ask for the person who is dealing with payments in your client’s company. In reality, freelancers and small businesses don’t have the time nor the resources to implement such a proactive credit control process. Luckily, automated solutions help you streamline this process by taking the pain out of actively chasing most of your debtors personally.

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As your payment terms usually only apply after the customer has received their invoice, it is in your best interest to issue these promptly. Just think about the number of additional trade credit days you provide to your customers that are outside of your agreed payment terms. Many businesses can noticeably improve their cash flow by just sending invoices in a timely fashion and to the right person. It is worth pointing out that the person you invoice is not always the one you are actually working with regularly.

By using an accounts receivable customer relationship management (CRM) system, such as Satago, you can configure your system to contact your customer automatically, a few days after invoicing, to prompt them to confirm the receipt of an invoice.

Finally, you should ensure that your invoice is accurate. It’s better to be meticulous and give too much detail than too little, especially if you consider that invoice disputes due to missing details is the third most common excuse for late payment. And remember, that invoice reconciliation can be complex at times so you should make sure that your clients include your invoice numbers as references for every payment they make. This will help you work out which invoice has actually been paid.

2. Invoice reminders – a simple, yet underestimate credit control tool

For reminders to have the right impact, proper wording and sufficient information are key to getting the most from them. To be truly effective, the first invoice reminder should be sent before an invoice reached its deadline.

Subject Line - The first impression is everything

The subject line is the first point of contact with the debtor after an invoice has been issued. The same principle that applies to outbound sales emails and email campaigns applies to your reminders: your subject line needs to be actionable, to the point and describe the subject of the email.

Your subject lines should start with the word ‘Remember'! And, we do mean Remember. You might be surprised, but this simple word can make a huge difference. Basically, it indicates that a course of action is required. Don’t call it reminder despite the fact that this is what your email is all about. The email marketing provider MailChimp found that the word ‘Reminder’ in a subject line affects your opening rate negatively (If you were curious about other ’nogo words' - the words ‘help’, ‘free’ and ‘per cent off’ are equally negative).

We have found the following subject titles to be highly effective:

  1. Remember! The following invoice needs your attention.
  2. Remember! COMPANY’s invoice #### is still overdue!
  3. COMPANY's Invoice #### requires your attention!

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Level of Severity

If your first reminder was ignored, we highly recommend that you increase the severity of your tone in your second reminder and onwards. You should ensure that your message comes across succinctly. Don’t forget, you are seeking to get paid on time, therefore, don’t be shy to charge late fees where you feel it is applicable. More about late fees on page 13.

If your first reminder was ignored, we highly recommend that you increase the severity of your tone in your second reminder and onwards. You should ensure that your message comes across succinctly. Don’t forget, you are seeking to get paid on time, therefore, don’t be shy to charge late fees where you feel it is applicable. More about late fees on page 13.

Professionalism is key

Never let your emotions get in the way. In a business setting, it is crucial to keep a professional tone if you wish to be taken seriously.

Ask why they are late

This might be obvious but we were surprised by how many people forget to investigate the reasons why a client is not paying on time. Once you know the reason for late payment, you might be able to help them by altering your payment terms or offering an instalment programme.

Personalise your messages

You should have templates that can be used for most of your clients most of the time. However, for your best customers, it makes sense to always tailor your emails and add a personal touch as it can make all the difference in getting paid faster.

3. KYC – Know Your Customer

Before working with a new customer, you should know whether they will, or are able, to pay you promptly (or at all). What do you know about them or their business? Do you have any information about their financial health? Your best course of action is to use credit risk data, such as that offered by credit reference agencies (“CRAs”), such as Experian, and available within Satago’s platform.

A credit report contains a lot of information about your customer’s business with the key metric of financial health being their credit score. The credit score is a numerical representation of the likelihood of the business failing within the next 12 months. The greater the number, the more unlikely it is for the business to become insolvent. It should be noted, however, that a high credit score does not necessarily mean that a company pays its invoices on time. In our experience, a large percentage of businesses with good credit scores will pay their suppliers as late as possible.

County Court Judgments (“CCJs”) are a good place to look for acrimonious situations and possible future problems. Be very wary of companies that have frequently been taken to court in order to be forced to pay their invoices. There may be a reasonable explanation for the CCJs but it is prudent to enquire as to the circumstances.

What should you do if a company has a poor credit rating and/or multiple CCJs? Well, the first question to ask yourself is whether you want this company as a customer. Is it better to have no customer than a customer who is chronically late in paying you? You may not be in a position to be so selective. If this is the case, insist on a portion of the payment upfront and try to negotiate reduced payment terms so that you can begin chasing your money sooner.

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4. Provide incentives to get paid faster

Don’t get us wrong! We think you deserve to get paid on time and it goes without saying that you should get paid in full. However, late payments are ubiquitous. Finding ways to decrease this likelihood is just good business and providing incentives can actually help to get you paid on time. Instead of creating a culture of late payment, it might be beneficial for you to provide a discount for early invoice settlement. A usual rate for discounting your invoice is about 2% for invoices paid within 10 days, with no discount for the normal payment terms of 30 days.

By getting paid faster, you can invest in your business and decrease your days sales outstanding (“DSO”) significantly. Kahneman and Tversky1 found that the emotional impact of losing money on people is stronger than the gain. They called it Prospect Theory and it has the same relevance to invoice discounting. A customer values the loss of not taking the discount and decides to pay you early.

5. Sometimes we overlook the obvious - KISS

No, we are not suggesting that you get intimate with your debtors. What we are referring to is the principle of ‘Keeping It Simple, Stupid’. Originated from the design principle introduced by an engineer in the U.S. Navy in the 1960s, it can be applied to other processes. The theory suggests that taking people through the steps they have to do, makes it more likely that they will display the behaviour desired.

Outlining the essential information in an invoice reminder (amount, issue date, bank details, etc.) makes it easier for your customers to act. Making use of different channels (texts, emails or letters) can ensure that they will receive and notice the reminder.

Remember, to tailor your message to your customer. For example, millennials are often more tech-savvy than previous generations and might see your reminders if they are sent via SMS or email but miss a letter in the post.

6. Your rights

For many business owners, it often comes as a surprise to find that they have a statutory right to claim late payment fees once an invoice is overdue.

In the UK, you are entitled to charge a compensation rate of:

  • £40 for invoice smaller than £1,000;
  • £70 for amounts between £1,000 - £10,000;
  • £100 for amounts above £10,000.

In addition, you can charge 8.0% p.a. above the Bank of England base rate on amounts overdue.

We don’t recommend using late payment charges for all your customers, as it might sour your business relationships. However, for those customers that need constant reminders, we think a warning, that late payment charges will be applied, should be included in your reminders.

Provided that you have sent several reminders to your client, we highly encourage you to start charging late fees for invoices that are overdue by more than 45 days.

You should not issue an additional invoice to your customer but only state the additional amount due in your correspondence to them.

7. Letter before action

For invoices that are older than 90 days beyond the due date, you should issue your customer with a ‘Letter Before Action’ (LBA). This is a formal reminder that it is their last opportunity to settle their debt before you start legal proceedings. You can send this letter yourself or approach one of many legal firms specialising in debt collection.

Around 90% of debtors will settle soon after receiving an LBA. The LBA should contain all details of the invoice, the pre-agreed due date and state that you have taken reasonable steps to recover the money. You need to specify that if the debt is not paid by a new specified deadline, you will issue legal proceedings for a CCJ.

With all this automation, you might wonder whether there is a human component to debt collection and whether you do actually need a credit controller. If you issue up to 1,000 invoices per month, you can easily do without a dedicated credit control manager by automating the reminder and invoice statement process. We would advise that, as a rule of thumb, businesses that issue between 1,000 and 1,200 invoices per month should consider hiring one credit control manager.

For every extra 1,000 invoices you issue per month, another full-time credit control person might be worth adding to your staff. Remember, though, that if you make use of automation, such as the free service offered by Satago, you can have an effective credit control team within reasonable costs. Statistics show that SMEs spend an average of 10 hours per week chasing their customers for payment. At Satago, we found that using technology, companies can cut that down to about 2 hours a week and that roughly 80% of companies that receive invoice reminders will pay on time. This means that approximately 20% of your customer base will require a more proactive chasing approach entailing your credit control staff to follow up with a phone call or go down the legal route. This keeps your costs low and still gives you complete control over your accounts receivables.

[Download PDF for Bonus Material and Reminder Templates]

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