MenuFleximize
Apply Now
Apply Now
​Credit Control Checklist for Small Businesses - Fleximize

​Credit Control Checklist for Small Businesses

If you offer your products or services on credit, it's vital that this is carried out in a controlled manner and a strict collection procedure is in place

By Sharon McDougall

If your business offers products or services on credit, it’s important to manage the credit well. Having a good credit control checklist can help you get paid on time and avoid bad debts. This checklist will guide you through the steps to create a simple and effective credit control process.

Good credit control procedures help your business keep a steady cash flow, avoid financial problems, and build trust with your customers. Here’s how you can create a solid credit control management plan to make sure your business stays financially healthy.

What is credit control?

Credit control is the process of letting customers buy on credit (buy now, pay later) and collecting the money they owe you. It’s about making sure customers pay on time and that your business is protected from the risk of not getting paid.

Before you allow customers to buy on credit, you should check their financial health. This will help you decide if they are likely to pay you back on time. By having a proper credit control management system, you reduce the risk of non-payment and ensure your cash flow remains steady.

Credit control isn’t just about getting paid – it’s about protecting your business, ensuring your finances stay in order, and keeping relationships with customers strong.

Why is credit control important for small businesses?

Credit control is crucial for small businesses because it helps you stay in control of your cash flow. Without good credit control procedures, you might struggle to get paid, which can hurt your business.

For small businesses, poor credit control can lead to delays in payment or, worse, unpaid debts. These can cause problems with paying your own bills, suppliers, or employees.

With good credit control management, your business can:

When you manage credit properly, your business can continue growing and avoid financial strain.

How to create a credit control process

Here are the main steps for setting up a good credit control process:

1. Do a credit check

Before you offer credit to a customer, it’s important to check their credit history. This can help you avoid working with customers who might not pay you on time.

You can ask customers for trade references, like past businesses they’ve worked with, or get their permission to run a credit check. Credit reports will show if they have had problems paying other businesses, such as overdue payments or court judgments.

By doing this, you can see if the customer has any issues with repaying debts. If they’ve been slow to pay other businesses, it may be a warning sign.

If you don’t check a customer’s credit history, you could put your business at risk. It’s always better to know the potential for payment issues before offering credit.

2. Set clear payment terms

It’s important to be clear about when and how customers should pay you. This is why payment terms are so important. Payment terms should include:

Make sure to clearly outline what will happen if a payment is late, such as adding interest or charging extra fees. Clear payment terms help prevent confusion and make it easier for you to get paid.

For example, if you say that payments are due 30 days after the invoice date, customers will know when to pay. If they miss the due date, you can follow up and remind them of the agreed terms.

Consider offering a prompt payment discount

A prompt payment discount can encourage customers to pay early, helping to improve your cash flow and reduce the risk of late payments. This works by offering a small percentage off the total invoice if payment is made before the due date.

For example, you might offer a 2% discount if payment is made within 10 days instead of the full 30-day term. While this can be an effective credit control tool, it's important to ensure that the discount doesn’t reduce your profit margins too much.

By setting clear terms and offering incentives for early payment, you can keep your business financially stable while maintaining good customer relationships.

3. Use a centralised payment system

Managing payments can be tricky if you don’t have the right system in place. Using a centralised payment system helps keep track of everything in one place.

With a good system, you can:

Using an automated system is especially useful. It helps you stay on top of overdue payments and makes it easier to follow up with customers when needed.

There are many online tools available that allow you to automate these processes, such as sending reminders and tracking payments.

4. Have a clear collection process

If customers don’t pay on time, it’s important to have a clear collection process. Here’s how you can do that:

Be consistent in your follow-ups, and don’t let overdue payments pile up. The sooner you follow up, the better chance you have of getting paid.

Sometimes it’s necessary to be firm in your approach but always try to keep the relationship professional.

5. Check Companies House data

If your customer is a company, you can check their financial health by looking up their company details on Companies House. This can tell you if the company is struggling financially or has any debts.

For example, if a company is losing money or facing legal action, you might reconsider offering them credit. You can also use services like our partners at CreditSafe, which can provide real-time financial information and tell you if a company has any issues.

Being proactive in checking financial data helps you avoid risky customers, ensuring that you don’t extend credit to companies that may not be able to pay.

What are the 5 Cs of credit control?

The 5 Cs of Credit Control are key factors used to evaluate a customer’s creditworthiness before extending credit. These criteria help businesses determine the level of risk involved and ensure that credit is managed responsibly. Here's a breakdown of each "C":

Character

This refers to the customer’s reliability and trustworthiness. A credit history check helps assess their payment behaviour. If a customer has a history of late payments or defaults, it could indicate potential risks.

Capacity

Capacity is the customer’s ability to repay the credit. This involves reviewing their financial situation, such as income, cash flow, and existing debts, to ensure they can meet their obligations.

Capital

Capital represents the financial strength of the customer. For businesses, this could mean analysing their assets, net worth, or investments. Strong capital indicates a lower risk of default.

Conditions

Conditions refer to the terms of the credit agreement and the external factors that might affect repayment, such as economic trends, industry performance, or market conditions.

Collateral

Collateral is any asset the customer offers as security for the credit. If they fail to repay, the collateral can be used to recover the outstanding debt, reducing the risk for the lender.

The benefits of a good credit control system

Having a good credit control checklist can make a big difference for your business. Some of the benefits include:

A good credit control management system helps your business stay healthy and grow. It ensures that your customers understand when and how to pay, and it gives you a solid process for managing payments.

Credit control procedures are an important part of running a successful small business. By checking customers’ credit, setting clear payment terms, using a payment system, and following up on overdue payments, you can protect your cash flow and avoid bad debts.

About the Author

Sharon McDougall is DAS Approved Money Adviser at Scotland Debt Solutions, a personal debt recovery service for residents in Scotland. John is an experienced advisor in a range of debt solutions, helping Scottish residents lead a debt-free future. The Scottish-based firm, with over 25 years’ experience, can assist with Sequestration, Trust Deeds and Debt Arrangement Schemes.

Your common questions answered

Credit control in accounting is the process of managing the money that customers owe you. It involves setting payment terms, checking customers’ creditworthiness, and collecting payments on time.

The main steps are:

  1. Check the customer’s credit.
  2. Set clear payment terms.
  3. Send invoices promptly.
  4. Remind customers about overdue payments.
  5. Take action if payment is not received.

A credit controller is someone who manages a business’s credit process. They make sure that customers pay on time and handle overdue payments.

  1. Set clear terms for payment.
  2. Check the customer’s credit history.
  3. Send invoices promptly.
  4. Remind customers about overdue payments.
  5. Take action if payment is not received.

Do you have a question that you can't see? Check out our FAQ page.