Is Credit Control Automation the Answer to Your Customer Payment Headaches?


Finance Insights for ProfessionalsThe latest thought leadership for Finance pros

Thursday, March 3, 2022

Automating your credit control process could save you time, while improving cash flow and providing consistency to customers.

Article 4 Minutes
Is Credit Control Automation the Answer to Your Customer Payment Headaches?

Maintaining consistent cash flow is vital for any organization to continue its day-to-day operations and remain profitable. As a company accountant or credit controller, you’re likely to be keeping a close eye on this part of the business and looking for strategies to ensure it runs as smoothly as possible.

Among the tactics to employ is credit control automation, which has wide ranging benefits, from saving your staff time to improving relationships with your customers.

What does credit control automation entail?

Credit control automation can be easily implemented through a simple six-step process. You may find that you’re already completing some of these tasks as part of your sales process, but automating them and ensuring they are consistently carried out every time will streamline your procedures and reduce the cost of debt recovery.

Step 1: Order confirmation

Generating an order confirmation is fairly standard procedure, but there are a number of ways to ensure this first step sets the precedent for high standards. It must be connected to your accounting system and have a valid purchase order (PO) number attached to it. Implementing a system where order confirmations that don’t have a PO are flagged and an email sent to the employee responsible will mean no receipts will be sent out with incomplete information.

Step 2: Payment reminder

An automated payment reminder that’s sent out prior to the date when the invoice is due will help to eradicate delays put down to lost invoices. This reminder should include all the details your customer needs to be able to pay your firm and can also contain an early settlement discount if that’s a route you want to go down. Such incentives for prompt payment can save your organization money in the future by improving cash flow.

Step 3: First overdue notice

There’s no need for any of your staff to scour the records and send out overdue notices periodically when you have an automated credit control system in place. Instead, an overdue notice will be sent one week after the invoice was due and an internal notification will alert staff to the status of the account.

Step 4: Second overdue notice

When the second overdue notice is automatically generated two weeks after the payment was expected, it will have stronger wording. The internal communication won’t just go to the accounting team but also to key decision makers within the business, so that they’re aware of the late payment situation.

Step 5: Notice of penalties

By the time three weeks has passed since the invoice was due, your credit control system should be informing the client that late payment penalties will be applied to their invoice. It’s a good idea to set up an alert to provide account managers with this information too, as they’re likely to be in contact with the customer and can encourage them to pay their invoice.

Step 6: Account suspension warning

When the customer has been overdue by four weeks, a warning will be sent out informing them that their account will be suspended in seven days if the invoice isn’t settled. This means that by five weeks some decisive action has been taken.

In the US, goods and services must be paid for within 60 days of billing unless otherwise stated. Either way, it’s good practice to lay out payment terms and dates prior to undertaking the work, so as to avoid ambiguity.

An updated list of accounts that will imminently be suspended or those that have gone into suspension should be sent out to staff regularly. This will ensure continuity of experience should a customer get in touch with different parts of the business, and show them that account suspension isn’t an empty threat.

The benefits of automated credit control

Putting credit control automation in place will have a transformative effect on not just the accounts department, but other areas of your business too.

1. Improved relationships with customers

When credit control is automated, visibility is improved, enabling customers to understand exactly the position they’re in and what measures your organization will take to receive payment on time. Removing ambiguity means all employees understand the system and can convey the steps to the client clearly.

2. Save time

Almost a third (32%) of all businesses spend up to three-quarters (between 51% and 75%) of their time chasing overdue payments, according to Debt Register. Nearly a quarter (24%) were found to be allocating even more hours to the task (76%+). This is time your team could be using elsewhere to help develop and grow the organization.

3. Accurate chasing

Human error can result in a customer being chased for a late payment incorrectly, which is not only awkward but can also damage relations. When reminders are automated they are sent at specific pre-set times and don’t get missed or moved up accidentally.

4. Better cash flow

The ultimate goal of credit control automation is to improve your company’s cash flow. Late payment has actually been getting worse and only 29.1% of invoices in the US were settled on time in 2020. This can prove to be a significant threat to your cash flow if it’s not tackled.

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