A complete guide to credit control: Meanings, duties, templates and more

If you run a business, there’s a high chance you’ve experienced the late payment of invoices and all the issues this brings. When your business doesn’t get paid for its services, it faces real difficulty in sustaining and expanding operations. The existing financial resources of the company are also put under pressure, exposing you to the risks of insolvency and bankruptcy.

Credit control is your main means of preventing this from happening. In this guide, we examine credit control, including what it is, its importance, and what credit controllers do. We then show you how to manage credit control procedures with letter templates that will ensure your demands for payment are met without damaging the relationship between you and the debtor.

What is credit control?

Credit control is the process of assessing the creditworthiness of a potential customer, agreeing on payment terms, then ensuring that they pay you for the product or service you provide – on time and in full.

While large companies typically employ credit controllers or run a credit control department, the function is deeply important for small and medium-sized enterprises (SMEs) too. Here, the role will typically be conducted by the business owner, finance director, or bookkeeper.

The importance of credit control

If you run or work for an SME, you may find that collecting payments in time is a constant struggle. In 2019, BACS figures showed that SMEs were owed £23.4 billion, up from £13 billion in 2018, and 54% of SMEs experienced overdue payments in all. This is a big problem since smaller companies are not typically in a financial position where they can cope with payment uncertainty.

This is why credit control is so important. The payment of a large invoice may be the difference between your suppliers and staff being paid and having to rely on forms of debt, which can further push your company into the red. Failure to pay your suppliers can also put you in the same tricky legal position as your customers, given that the law states you can both charge interest and debt recovery costs on late commercial payment.

Even in larger companies where cash reserves and debt may be more forthcoming, too many late payments can play havoc with cash flow and the accuracy of forecasting. It’s for this reason that credit control is a crucial part of corporate finance functions.

What does a credit controller do?

Credit controllers manage the debts owed to their business. They have a range of responsibilities, including:

• Commercial collection – Recovering money owed by businesses.
• Consumer collection – Recovering money owed by individuals.
• Credit evaluation – Evaluating credit requests and ratings from potential customers and debtors.
• Contract development – Designing and optimising the terms and conditions of credit, including invoices.
• Pursuing payments – Contacting late payers and informing them they are late, and the consequences of late payment.
• Repayment planning – If unable to pay, negotiating repayment plans with late payers.
• Payer assistance – Answering queries from payees regarding invoices, their payments, and other relevant topics.
• Payment processing – Processing received payments and updating accounting systems.
• Reporting – Producing reports on the business’ credit control.

While credit controlling is a financially focused role, being a good credit controller also requires good people and problem-solving skills. Approaching credit control aggressively might lead to results, but it can ruin otherwise sunny business relationships, or close them down altogether.

How to manage credit control – procedures and email templates 

To properly manage your credit control procedures, and create credit control email and letter templates that allow you to effectively recover unpaid invoices, it is important to adopt the right approach. Whichever stage of the credit control process you are at, consider our guidance below.

Before an invoice is due

It is always a good idea to send your customers a credit control reminder letter or email if you are imminently due a payment from them – 3-5 days beforehand, for example. As well as politely reminding them of their obligation to pay, this can help you better understand the customer’s situation. Are they able to promptly pay or not?

When writing a credit control email, it is important to make proper use of the limited characters of the subject line. Assuming that your customer receives many emails in a single day, the subject line is the only opportunity your business has to differentiate itself from the countless other emails in their inbox. 

Include your business’ name and the reason for contacting the customer. For example, an ideal subject line would be ‘Subject: Nucleus Invoice X’, where ‘X’ represents the invoice number. Such a subject line is self-explanatory – the recipient will understand at once what the correspondence is regarding.

The important points that must be covered in a credit control email include the:

• Total payment amount due
• Invoice reference number
• Payment due date

Make sure to attach a copy of the invoice as it may be the case that the customer hasn’t received a copy of the invoice. And when drafting the email, write professionally and considerately, so as to not come across as a business that could potentially harass a customer over payment. 

The invoice is slightly overdue

When the due date for payment has passed, it can be easy to adopt a harsh and aggressive tone in your credit control email or letter correspondence. However, such a practice can often be counterproductive.

Even at this early stage, it is important that your business maintains a polite tone, as this can be the best way to make your customer agree on a new payment date or plan. It also ensures that you build long-lasting relationships with customers.

When writing credit control emails for slightly overdue invoices, keep the tone friendly and cordial. The email should express concern over non-payment of dues but also extract information from the customer, namely the prospective timeframe in which they propose to make the due payment. By making your customer commit to another deadline, you increase their responsibility towards making the payment.

Once again, it is important to attach a copy of the invoice, and the frequency of such emails should not exceed more than once every one or two weeks. 

The invoice is very overdue

If many days have elapsed since the invoice due date, your business needs to alter its credit control reminder letters. That means including subtle elements which hint at the ramifications of paying late and making it known that your business does not take kindly to late payers.

Firstly, to get your customer’s attention, place the word ‘OVERDUE’ at the start of the email subject line. This will ensure the correspondence stands out in the inbox.

When writing, bear in mind that the purpose of this credit control email is to establish a prospective date of payment when your business can expect to be paid. If you adopt a highly aggressive posture, you may ruin your relationship with the client, or scare them away further. They may be going through financial problems of their own – don’t give them another reason to continue avoiding the problem.

You should also mention how severely late payment can impact your business’ ability to operate. This taps into the customer’s empathy and in some cases may speed up the payment process.

If you continue to not receive payment, tell your customer that you will be charging interest and late payment fees, and how much these will equate to. If that doesn’t work, the threat of legal action may be your only avenue – but make sure that you have exhausted all other credit control approaches before you get to this stage.

Remember to give thanks

Once you have received the due payment, you should follow up with an email that thanks them for processing the payment. It is crucial to maintain a healthy relationship with all your customers and thanking them at the end of a transaction is an easy way to build rapport. 

What to do if credit control doesn’t work

If you are a business that regularly finds itself in this predicament, constantly chasing funds held up in unpaid invoices, there are finance products out there that can help alleviate the problem.

Invoice finance, for example, is available to businesses of all sizes, and thousands of SMEs rely on this product to continue running a smooth operation. Invoice factoring tends to be the most popular option, as the lender takes full responsibility for the sales ledger management process, meaning businesses can focus on doing what they do best – providing a service or product that customers are happy with. 

For more information on good credit control and invoice finance, or to apply, contact our team today. They are always happy to talk through your situation and the options open to you.