The Importance of Credit Control for Business Health

In Process Improvement by Nina Evans

Reading Time: 4 minutes

At the risk of stating the obvious – reliable Credit Control processes are an integral part of the successful running of any business.  With bad debt and cash flow issues named as two of the main reasons small businesses fail, we simply can’t afford to take our eye off the ball and become complacent about Credit Control.

What is Credit Control?

Credit Control is the system used by a business to make certain that it gives credit only to customers who are able to pay. And of course, that customers pay on time. It is a critical part of a well-managed business that will help reduce bad debts and improve the cash flow.

Good housekeeping is Crucial

Credit Control has such a huge impact on cash flow and let’s face it, even if you are lucky enough to be consistently satisfied with your aged debt, there will always be room for improvement.  That being said, there is no doubt that Credit Control can be a resource hungry task.  It is very easy to overlook. Especially in an early stage business when there are so many other seemingly more pressing jobs to do.  It can become a case of fire-fighting, but often at this point, cash flow will already have been affected.

Time is Money

In order to protect your revenues and profits – consistent Credit Control strategies must be put in place from the very beginning.  Best practice to minimise risk is to ensure realistic, sensible and proactive policies and processes are mapped out early on rather than reacting to failings further down the line.  Statistically the longer a debt is left un-managed the less chance there is of ever receiving payment.  That old saying ‘Time is money’ is certainly relevant when it comes to Credit Control.  The amount of administration involved in debt recovery can be huge so it is definitely best not to let things get out of control.  It is way more effective to use a sensible and systematic approach and start the Credit Control process at the offset, this will no doubt save time and even more importantly, a business’s profits, in the long run.

Look after your Staff

Even if you are a one-man band, you still need a wage right?  Most employees would get to the point where they wouldn’t turn up for work if they stopped receiving a wage.  That said – I think most organisations would quickly crumble without reliable staff and obviously this could have a catastrophic effect on most businesses. Seems like a drastic scenario but if no one is regularly focused on Credit Control then this is possible.  No Credit Control being done = bad cash flow = unable to pay salaries.

Release Healthy Cash Flow

Cash flow is so greatly affected by how effective Credit Control is.  Successful processes can release healthy cash flow to business thus meaning you should be able to avoid costly borrowing like overdrafts, loans and even invoice discounting.  All of these things have their place and are very much necessary in many scenarios. You will have a better night’s sleep safe in the knowledge that your cash flow is safeguarded and healthy as possible.  Even if say you wish to expand your premises or invest in new equipment for the business and you do borrow, you will need to keep your cash flow in good check in order to continue making those regular payments to the lender.

Keep your Suppliers Sweet

Healthy cash flow allows you to pay your Suppliers in a timely manner. This increases your credit score and could improve your terms with them. When you respect your supplier’s terms this should also promote good relationships with them.  In some cases, you will also avoid any unwanted late payments fees. Your companies position in the industry will be improved by promoting a professional brand image. Many businesses offer a discount if you pay early. You could have the opportunity to pay less which would also improve cash flow. Win, win!


As your business prospers from good money management you could increase growth. However, with this growth, your client base will probably get larger, which in turn increases exposure.  Therefore, you can never afford to become complacent with Credit Control.  Discourage late payments by setting credit limits and clear, realistic terms.  In my experience, many customers won’t make payment until they are chased. Keep up with those processes and policies at all times to reduce risks. Remember to keep your eye on the ball guys, keep chasing!

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Set up rules and actions to automatically send chase letters, put accounts on stop and schedule phone calls to save time carrying out repetitive tasks.