Credit control during an economic downturn

Credit control during an economic downturn

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Keeping on top of your cashflow is a task in itself.

But, when a recession hits, it can sometimes feel nigh on impossible to stay on top of the money coming in and out of your business.

In our last blog post, we discussed how easy it is for a business to slip into cashflow issues, and the importance of planning and preparation in regards to business finance.

From monitoring accounts payable and receivable, to lines of credit and discounts for early payment of invoices, there are plenty of ways in which a business can look to improve their cashflow.

Establishing a plan of action for your cashflow is key, and another effective way of maintaining this is through credit control.

What is credit control?

If you’re a business that issues invoices for your work or services, you should consider utilising structured credit control as a way of managing your cashflow.

In simple terms, credit control is putting measures in place, typically via a late payment term stipulated on an invoice or clear notice to your debtor of the terms of payment, to ensure that your customers or clients don’t take too long to pay you.

For SME’s, late payments can often have a hugely detrimental impact on cashflow, which is why credit control is a particularly effective way of maintaining a positive flow of cash back into your business.

In fact, a recent study revealed that hundreds of SME’s across the country are chasing over £50bn worth of late payments.

Not only is it the act of late payments that negatively impacts a business, but it’s also the amount of time taken up chasing a delayed invoice that can affect business operations.

The study also revealed that, out of 1,000 UK businesses surveyed, the average SME can be chasing up to five outstanding invoices at a time, equalling to around £8,500.

That equates to nearly 2 hours per day of chasing late payments for senior members of staff or accounts teams.

Historically, smaller businesses are often the most likely to experience late payment issues, particularly when chasing up larger clients.

This is where credit control can help SME’s effectively.

How does credit control work?

As mentioned, credit control is typically used in conjunction with an invoice.

When sending an invoice, payment terms, the conditions surrounding the payment as detailed by the ‘seller’, will be drawn up for the client or customer.

The payment term will specify the number of days that payment is expected by the business. 

For many years, the payment period has typically been 30 days upon receiving the invoice or from the end of the month in which the invoice was received.

But in today’s world of computers and online banking, businesses now have the opportunity to set out shorter payment dates – this can be as little time as seven days for expected payment.

It’s also important to note that statistics have revealed shorter payment terms are often paid quicker.

Although payments go overdue, this form of credit control means invoices still get paid faster than the usual ‘30 day’ payment window.

When payments do flag up as overdue, it’s time for businesses to chase payment, either through a phone call, email or, in a more traditional form, a monthly statement.

This act of chasing a late payment is what’s known as ‘credit control’.

How to utilise credit control during a recession or industry downturn

Although credit control is important all year round, when a recession hits, it is even more pivotal that credit control is undertaken properly.

In an industry downturn, typically a wide variety of sectors are affected, which can therefore mean many businesses will tighten their purse strings, and become more conscious of their own cashflow.

If you’re struggling with the prospect of keeping on top of your cashflow, now might be the time to consider utilising credit control, and a credit control function.

Particularly in a period of financial uncertainty, Peak Cashflow can ensure that debtor accounts stay within their credit limits, and that debtors are credit insured.

This means removing the potential risk of a debtor going bust, which can be a real threat in an industry downturn.

We are also able to focus on maintaining your average collection days, which helps you to organise your cashflow more efficiently.

Having a set day for collection means you know when a debtor is going to pay you, as the credit control has been organised in this way, allowing you to manage your outgoings effectively.

Why should a business outsource credit control?

Credit control is a job that people avoid, which means it gets pushed to the bottom of an ever-increasing to-do list.

By outsourcing to a reputable credit control provider, such as the team here at Peak Cashflow, credit control will then become a priority.

This means passing on this time-consuming role to a team whose sole responsibility it is to chase up payments, who are then able to keep on top of this each day.

At Peak Cashflow, our team includes very experienced staff members, some who are responsible for undertaking professional credit control.

Their role is to build strong relationships with customers, making sure all contact is consistent, leaving owners free to get on with the day to day running of their business.

Having a diary-driven system, debt is chased exactly when it needs to be, ensuring that the promises made by your debtors are fulfilled. 

It’s then our job to follow up on any late payments to ensure you’re being paid for your hard work and services.

Having been a reputable credit control function provider for many years now, we’ve developed an effective process that works.

We will chase your invoices via email, phone or statement contact, to ensure that all processes are as efficient as possible.

As we get to know your clients, we can then set out a bespoke pattern for chasing each individual business or person – as we’re sure you’ll understand, some need more chasing than others.

What’s more, we can be a useful extension to your in-house credit control team.

At Peak Cashflow, we have a saying; “Businesses rarely go bust due to losses, but always go bust due to running out of cash”.

Which is why processes like credit control are so important to ensure you stay on top of your cashflow.

If a recession or economic downturn is on the cards, it can very often be a knee-jerk reaction for businesses to put credit control practices into place. But, we think it should be of priority all year round.

If you’d like to discuss how we can help your business with credit control, please get in touch with our team on 0121 236 7575 or email us on and we’ll get back to you.