Six Steps for effective Contractor Credit Control

Credit control needn’t be a tricky business for contractors, simply by following a few easy, logical steps you can ensure your client has received the invoice and that it will be paid promptly.  Detailed below are six simple steps to effective credit control for contractors.  In this example we will assume your company is operating on “standard” 30 day payment terms, if your terms are different feel free to adjust the timings as needed.

Step 1

Place a “friendly” call to the client - Between 7 and 14 days after the invoice has been issued.

The aim of this call is to confirm with the client that the invoice has been received and that it will be paid on or preferably before the due date.  In addition this call serves two other important functions.

  1. If the client has any queries or issues that may delay payment they are very likely to raise these with you now, giving your company plenty of time to rectify or correct any problem well before payment is due.
  2. This call is also a great opportunity to get some feedback from the client as the work will (hopefully) still be fresh in their minds. It can also give you a good lead in to any future projects the client may be planning.

Step 2

Send a statement of account. On the due date.

Most businesses send statements of account at the end of the month to clients and it is a great way to remind the client the invoice is due, without actually “chasing” the payment directly.

As statements are so widely used in business a client is extremely unlikely to have any objections to receiving one.

Step 3

Email the client a brief but polite message regarding payment of the invoice seven days past the due date.

90% of the time late payment of an invoice is down to a clerical or administration error and it is very unlikely to be an indicator of insolvency at the client.  So stay calm and professional and endeavour to get a firm date for payment. Remember at this point your payment terms have been exceeded, so don’t be fobbed off with excuses.

Step 4

Call the client 14 days past due date.

When a client is overdue it is absolutely essential that you stay in regular contact to ensure your invoice is settled as quickly as possible.  Out of sight is often out of mind and contractors who do not chase up unpaid invoices can often find they are at the bottom of the payment list, especially if other creditors are pressing for payment.

If the client does not have a compelling reason for non-payment it is imperative that you secure a payment date as soon as possible.

Remember if you have ongoing work for this client your next invoice is due very shortly.  Always aim to reduce cashflow risk by not allowing customers to forcibly extend your payment terms.

Step 5

Stay in touch - 21 days overdue from the payment date.

If your client has not paid your invoice in the 51 days since it was issued chances are they are deliberately delaying payment for some reason.  They could be struggling with insolvency or they could just be habitual late payers, but either way it is up to you to make sure that your unpaid invoice is never far from their minds.

By staying in regular contact with the client by phone and email you make it difficult for the client to ignore your invoice.  Remember business is business and you are doing absolutely nothing wrong in collecting monies that are rightfully due.

Step 6

Take recovery action when 30 days overdue or more

Bad debts kill profitable businesses. Dramatic? Yes, but it doesn’t make it any less true.  Every day profitable and successful businesses are forced into insolvency through a lack of cashflow caused by late or non payment of invoices.  If a single bad debt at the wrong time can kill an SME what would the impact be on your company and you personally?

When your invoice remains unpaid the worst thing you can do is wait, every delay radically increases the likelihood that an unpaid invoice will be written off as a bad debt.  As such it is absolutely essential that you take appropriate action to recover your monies as soon as possible.

To find out what the options are available to your business moving forward you may want to read our piece “how contractors can get paid, if all else fails” also available here ContractorUK.

Article contributed by Adam Home, of debt recovery specialists Safe Collections.

Tuesday 13th Nov 2018
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Written by Adam Home

Adam Home is Managing Director of UK & International Debt Recovery Specialists Safe Collections. The company, founded in 1984, has more than three decades of experience in recovering unpaid invoices and contractual arrears anywhere in the world.
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