Credit Control for Small Business Owners

A Warehouse Owner Negotiates With A Supplier On The Phone

Customers who don’t pay their invoices on time can really impact your cash flow. Credit control can help you evaluate the creditworthiness of customers or suppliers to assess their likelihood of paying on time, allowing you to plan your cash flow more accurately. 

Businesses of all sizes, not just financial institutions, should use credit control to manage their cash flow proactively. Credit control, also known as credit policy or management, aims to help businesses boost sales by knowing who to extend credit to; businesses are likely to extend credit to customers with a solid business credit history while being cautious towards businesses with poorer credit scores.

When a business uses credit control, it means they are taking steps to protect themselves from borrowers who might pose risks when given credit.

Key takeaways

  • Credit control is a business strategy that promotes selling goods or services by extending credit to customers after assessing their creditworthiness.
  • Businesses that use credit control often give credit to customers with a good credit history as they’re more likely to pay than businesses with bad credit histories.
  • Effective credit control helps avoid late payments and bad debts, ensuring financial stability.

Objectives of credit control

Let's break down the specific objectives of credit control that can make a real difference to your bottom line.

Minimising bad debt

Bad debt is the nightmare scenario for any business owner. It happens when customers don't pay you, leaving you out of pocket. Credit control is your shield against this. By assessing the creditworthiness of your customers upfront, you minimise the risk of them not paying later.

Improving cash flow

Cash flow is about having enough money to cover costs and keep things running smoothly. Credit control plays a crucial role here. Setting clear payment terms and managing waiting times ensures a steady stream of cash.

If you allow customers 30 days to pay, effective credit control ensures you have enough funds to pay your bills during that period. It's about keeping the cash flowing in a way that suits your business needs.

Enhancing financial stability

Every business wants to stand on a firm financial foundation. Credit control is the builder of that foundation. By carefully managing credit, you create stability. This stability is a buffer against financial shocks and uncertainties.

Contributing to overall financial health

Effective credit control isn't just about avoiding problems; it's about actively contributing to your business's overall financial health. It's a proactive approach that ensures your financial wellbeing in the short and long term.

Essential steps in credit control management

You can follow some simple steps to simplify your credit management journey:

Assessing customer creditworthiness 

Assessing creditworthiness helps you avoid risky transactions and safeguards your business from financial pitfalls. But, how can you do it?

  • Review credit reports: Obtain credit reports to assess the customer's financial history. Look for any red flags like previous late payments or defaults.
  • Examine financial statements: Scrutinise financial statements for a deeper insight into their financial health, focusing on liquidity, profitability, and overall stability.

Setting credit limits

Credit limits are the maximum amount a customer can owe you at any time. You should set credit limits based on your customer's creditworthiness. Trustworthy clients may get higher limits.

Finding appropriate credit limits for your business’ customers ensures sales while maintaining financial safety.

Establishing payment terms and enforcement

Establishing clear payment terms helps contribute to smooth cash flow. Here’s how to do it:

  • Set precise payment terms on invoices, e.g. 30 days from the invoice date.
  • Send reminders before the payment due date.
  • Implement late payment fees to encourage prompt payment.
  • Be prepared to take legal action if necessary.

Common credit control challenges

While credit control helps many businesses overcome cash flow problems, it’s not problem-free. Let’s run through some common challenges you may face and practical solutions to keep your business on solid ground.

Customer disputes 

Customers disputing invoices can throw a spanner in the works. It delays payments and can create unnecessary headaches.

To avoid this, confirm all terms with your customer before starting any work. Ensure your invoices are transparent, leaving no room for confusion; have clear terms and agreements in writing. This helps avoid misunderstandings later.

Late payments

Late payments can disrupt your cash flow, affecting your ability to cover expenses.

Clearly stating your payment terms on your invoices (e.g. 30 days) and ensuring your customers understand and agree to these terms from the start can prevent this.

Automated reminders before the payment due date also nudge customers to pay on time without creating tension.

Bad debt

Bad debt is the stuff nightmares are made of for small business owners – customers not paying at all.

Some practical steps to avoid this are:

  • Conducting credit checks before engaging with new customers: Knowing their financial history helps avoid potential bad debt.
  • Offering flexible payment plans for larger invoices: This can make it easier for customers to meet their obligations and allows you to plan your cash flow taking this into account.

Keeping control over credit risks

Maintaining control over credit risks can be tricky. But regularly reviewing your credit control processes and adapting them based on changing business circumstances can help.

Seeking professional advice

Consider seeking professional advice on credit management, as experts can provide tailored strategies for your business.

Facing credit control challenges is part of the small business journey. By implementing practical solutions, you can navigate these challenges and keep your business on the path to success. 

Technology and credit control

Embracing technology can make your credit control processes smoother and more efficient. Here's how:

  • Faster credit checks: Utilise software solutions for quick creditworthiness checks.
  • Automate manual tasks: Use technology to automate processes, such as sending payment reminders, to reduce the risk of errors. Tools like Chaser or Satago can automate payment reminders.

The bottom line

Good credit control is crucial for businesses that request payment via invoice. It helps avoid late payments and bad debts, ensuring a steady cash flow. Businesses can overcome challenges by checking customer creditworthiness, setting clear limits, and using technology for efficiency. Credit control is a smart strategy that keeps a company's finances in check, promoting long-term success in the ever-changing business world.


If you’re ready to enjoy enhanced cash flow, simplified expense tracking, the potential for rewards, and control over employee spending, apply for a Capital on Tap Business Credit Card in under 2 minutes today. 

This does not constitute financial advice. If you want to understand credit control in detail, contact your financial advisor or accountant.

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