Credit Control - Getting paid Half of all new businesses fail during the first two years. All too often the cause of failure is not the quality of the product or service, the effort and talents of the people, or the sales and marketing. It is quite simply financial failure - running out of money - which leads to closure, if not bankruptcy. In many cases, this failure could have been avoided by simple but effective planning from the outset. In too many new businesses well-qualified people enthusiastically develop their goods or services but pay insufficient attention to cashflow. Late payment erodes profits and stifles growth. A sale is not really made until it has been paid for. The discipline of ensuring prompt payment is called credit control or credit management and it has to be a priority if a business is to succeed. Granting credit to a customer involves the risk of non-payment and so should only be done after checking and assessing that risk. A bad debt means that a company could have to make sales five - or even ten – times the value of that bad debt just to recoup the loss. Research shows that the longer a trade debt remains unpaid the greater the risk that it will never be paid. For many companies, their receivables, the money owed to them by their customers, are their largest assets. Figures from BACS - the banks' automated clearing system - show that growth businesses have a combined overdraft of £4bn. Reducing the amount owed by debtors reduces the overdraft and frees up capital to be used to finance the business, and reduces the stress of running the business. Credit Control - The basics Making sure you are paid should start even before you have made your first sale. You could take some basic training. Your local chamber of commerce will run training schemes in basic credit control, including such topics as how to collect a debt over the phone. These courses are open to non-members. The Government sponsored, Better Payment Practice Group (BPPG) was formed to reduce late payment of commercial debt and publishes advice on the subject. From the outset, establish procedures for credit applications by customers: Produce a credit application form: books or advisors will show you how Make credit terms very clear Ensure that all staff are aware of credit policy Make payment terms a condition of sale Make sure that any buyer signs agreeing to your credit terms. Then decide that you will receive prompt payment; Design a clear invoice which will always state agreed payment terms Decide from the outset that you will always send invoices promptly and keep paperwork up-to-date Establish a timetable for chasing debts, starting with the first request for payment – the invoice. Payment should never be an afterthought. This way you will have established it as a priority and can give customers credit where appropriate. It is important to establish a potential customer's credentials. A visit to their premises will usually tell you a lot. The Annual Report is useful, although the information could be out of date. For high value or high risk orders, obtain a report from a credit reference agency. Such reports cost between £3 and £25, depending on the level of information. If you have a new customer, confirm that customer exists at where it says it exists. Confirm the address to avoid fraud. See how long they've been trading. If they're on a short lease, they could disappear with the goods. Also confirm that they have the cash to pay. There's no need to check their profit and loss account yourself because a credit reference company will do it for you – and they will suggest a credit limit and a credit rating. For potentially high value orders, take a credit report prior to negotiation, to avoid wasted effort. Credit costs and knowing the risks in advance helps in pricing. Remember, credit control is a continuous process: always monitor your debtors; their circumstances may change.