So You Know That Proactively Managing Cashflow is Essential to Business Survival – But… Which Credit Control Option is Right for You?

Businesses live or die by cash flow, and one of the key drivers for healthy cash flow is clients who pay on time.

But we’re not all fortunate enough to have clients who never need reminding or chasing, or who never run into cash flow difficulties themselves.

Even when your day-to-day operations are not being hampered by erratic cash flow, late payments will still have a negative impact on your business, stalling growth and eroding your profit with administrative costs.

That means it’s essential for your business that we credit control our clients, and you do it consistently.

Getting invoices paid should be a priority but for many business owners, credit control is a chore to be avoided.

So… let’s take a look at some of the options for getting it done for your business.

Do It Yourself

I’m assuming that you’ve got problems with people not paying you on time or quickly enough, but the very fact that you are considering what your options are means that you’re not really happy with the DIY option.

But… what is it that you’re not happy with?

Is it that you can’t find the time?

Are you struggling with getting the right mindset to pick up the phone and make the calls?

Or something else…

If you chose to stick with DIY, you need to ask yourself what are you going to do differently?

Invoice Finance

This is a form of asset-backed finance, with the debts owed to you by your customers (your debtors ledger) used as security for that finance.

A finance provider pays you a percentage of the value of your invoice in exchange for a fee. You reimburse them when that invoice is paid by the customer.

Using invoice finance a business can get invoices paid within days, instead of the weeks or months it can sometimes take to get payment from the customer.

Typically, fees are less than 5% of the invoice value but there are many hidden costs with invoice Finance so always make sure you read the small print and compare providers as they won’t all be the same. If that feels too big a task then use a finance broker to do the research for you to find you the best deal to match your needs.

There are two main types of invoice financing.


With factoring the factoring company essentially ‘buys’ the debt from you. They will pay you somewhere between 80% -90% of the value of the invoice immediately, and the balance, less any fees once they have been paid by the customer.

Typically, they take on the responsibility for credit control, though there are some products out there where that responsibility still sits with your business.

That may sound like a great idea, but you have no control over how they are treating your customers, or how effective their credit control processes are.

If the factoring company are unsuccessful in collecting the debt, it comes back to you to manage. AND you must repay the amount advanced to you against that invoice. This is known as recourse factoring.

Think about that.

You are stuck trying to chase an old debt where you’ve had no contact in the interim period between issuing the invoice and the debt going significantly overdue.

So you haven’t built any relationship up, you haven’t had any conversations about payment.

Invoice Discounting

With invoice discounting, you retain responsibility for your credit control activity. The main difference between this method and invoice factoring is that your customer is not aware that you have taken on cash flow finance.

The discounting company will lend you a percentage of the value of your debtor’s ledger and this lending acts a bit like an overdraft facility. You can dip into it to bridge the gap between issuing the invoice and being paid by your customer.

There is a fee for this type of borrowing, typically less than that for invoice factoring, and similar to bank loan fees.

A warning though.

If you are not on the ball with your credit control you may see the pot of funds available to you shrink as debts over a certain age get excluded from the facility.

Factoring and invoice discounting are useful for improving cash flow if you have a significant gap between the terms your customers expect and those you need to pay your suppliers within.

But, whilst the goal of factoring and invoice discounting is always to manage cash flow strategically, with the overall success of the business in mind, it is very easy for businesses to become trapped in a debt cycle, unable to operate without the existence of monthly cash flow arrangements, and their inherent costs.

Hire a Credit Controller

You could make credit control the responsibility of someone else in the business.

If credit control is to be part of someone else’s role, how do you make sure it gets made a priority over their other responsibilities? Do they have the skill set and mindset to do it? Do they really have the time to do it? Just because they’re amazing at keeping the office running smoothly that doesn’t necessarily make them a fantastic credit controller.

Recruiting for a stand-alone role is much better solution.

You will need to consider if you have enough work for a full-time role and if not how many hours a week will you need them for.

Credit control chasing requires a specific skill set and not everyone is suited to it, so chose carefully.

You sister or nephew may be a cheap option, but do they have what it takes to get the job done effectively and efficiently?

Taking on a specialist credit controller comes with several considerations.

  • What should be in the job description?
  • Be specific about the selection criteria you’re looking for?
  • What questions should you be asking at the interview?
  • How do you get them to demonstrate their skill?

There are also costs associated with recruiting and employing someone.

Outsourced Credit Control

As alternative to recruiting a specialist credit controller you could outsource your credit control to a specialist business.

Yes, you are passing your credit control over to a third party as you do with Factoring. The difference is that the outsourced credit control business service should be working with you to devise a process for chasing your clients that you are comfortable with and will keep you involved in the process all the way along.

Obviously, there’s still a cost involved. There are no ‘no-cost’ options. Even doing it yourself has a cost.

With outsourced credit control you get the expertise at a fraction of the cost of employing a specialist in-house.

Get the Foundations Right to Get Invoices Paid

Of course, all of your options will cost you more in time and money if you’re selling to the wrong customers. Those who are unable or unwilling to pay. Or if you’re unclear on your terms of business.

Good credit control starts the moment you receive that new enquiry or new order. The chasing part is just the end of the story.

Managing who you give credit to and how will significantly reduce the need for chasing at the other end of the order to cash cycle.

Efficient and effective credit management policies, processes and procedures help you stimulate your cash flow. They manage your credit exposure, improve your customer relations, minimise your bad debts and increase your profitability.

Book a call with us about our Credit Management Health Check today and discover how you can improve your cash flow and reduce the cost of giving trade credit.

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