The credit control process
Effective credit control starts before a sale is made. Conducting basic credit checks on new customers, setting appropriate credit limits, and agreeing payment terms clearly upfront reduces the risk of late payment significantly. Once invoices are raised, a structured, timely follow-up process is essential.
- Pre-sale: credit check new customers and set credit limits
- Invoicing: raise invoices promptly with all required information
- Reminder: automated payment reminder 3 to 5 days before due date
- Day of due date: confirm invoice is with the right person for payment
- 3 to 7 days overdue: polite chasing call and email
- 14 to 21 days overdue: escalated call, reference late payment legislation
- 30+ days: formal letter before action
- 45+ days: debt recovery agency or legal proceedings
Credit checking tools
Several credit checking services are available for UK businesses. Companies House provides free access to filed accounts and basic company information. Credit reference agencies such as Experian, Equifax and Creditsafe provide scored reports on individual businesses. For high-value customers, running a credit check before extending significant credit is good practice.
Credit control and invoice finance
With invoice factoring, the factor takes over your credit control function. This can be a significant benefit for businesses without a dedicated team. With invoice discounting, you retain in-house collections. Either way, having a strong credit control process maximises the quality of your sales ledger and the advance rate available from an invoice finance provider.
Frequently Asked Questions
Should I charge interest on overdue invoices?
You are entitled to under the Late Payment Act. Whether to actually charge it depends on your commercial relationship with the customer. Many businesses use the right to charge interest as leverage in chasing conversations without necessarily applying it to every overdue account.
What is a credit limit?
A credit limit is the maximum amount of outstanding credit you will extend to a single customer at any one time. Setting limits based on creditworthiness and payment history helps manage concentration risk and limits potential bad debt exposure.