Let’s start with the basics. Everyone gets that selling on credit is part of normal business. But what happens after the sale isn’t always as smooth as you’d hope. Sometimes payments come in late, or don’t show up at all. That’s when credit control policies move from background detail to front-and-center. They might sound a bit dull, but honestly, they could save your business a lot of headaches down the road.
When credit control works well, your company is less likely to run into cash flow trouble. You’re not scrambling to pay suppliers or making awkward phone calls to your bank when funds run low. Good credit control actually gives you more room to plan, invest, and generally breathe easier.
Credit Control: What It Actually Means
So what is credit control in practice? Basically, it’s a set of steps a company takes to decide who gets credit, how much, on what terms, and how to handle the money that’s owed. Some parts are obvious: checking if a customer seems reliable, deciding payment timelines, and making sure invoices don’t go ignored.
But it’s more than ticking boxes. You’re managing risk—balancing being open to new business with not getting burned. That means your credit control policy has several pieces: customer evaluation, credit limits, clear terms, monitoring outstanding accounts, and clear follow-up actions when things go sideways.
Setting Credit Limits: Finding the Right Balance
How do you figure out what a customer’s credit limit should be? It’s tempting to go big and hope for more sales, but that can land you in trouble if a customer doesn’t pay. So, start with some due diligence. Look at things like order history, payment track record, and how their industry is doing.
Some businesses use scoring systems, based on how risky the customer appears. For newer customers, limits are usually lower until they prove themselves. It helps to review credit limits regularly. Customers can change quickly—a company that was doing well last year might be struggling now.
Sometimes, once you get to know a customer, you can increase that limit to encourage sales. But never stop reviewing. Even strong customers can slide if their market dips or their cash dries up.
Making Credit Terms Clear from the Start
Confusion over payment terms can snowball into bigger issues. So it pays to make your credit terms super clear. That means laying out exactly when payment is due, any early payment discounts, late fees, and how disputes will be handled.
There’s often pressure to bend the rules for large or vocal customers. Still, it’s worth holding a line. Written agreements matter. That way, if questions come up later, everyone can refer back to what was agreed. This cuts down on disputes and makes it easier to collect if payments lag.
Evaluating Who Deserves Credit
Before you give a new customer a line of credit, it’s smart to check them out. This doesn’t mean acting like a detective—just some basic checks. Trade references are one method: ask their suppliers if they’re good payers. For bigger deals, people look at credit reports from bureaus like Experian. If the customer is another business, pull their financial statements.
How detailed you go depends on the size of the potential debt and how important the deal is to your business. A quick web search sometimes reveals a pattern of late payments or financial trouble. It may sound paranoid, but giving out credit is a risk to your cash, so it’s better to be safe.
Staying On Top of Invoices
Issuing invoices is pretty basic, but the way you handle them can mean the difference between prompt payment and weeks of delay. Send invoices out as soon as goods or services are provided. This avoids confusion and shows you’re organized.
Some companies use invoice management tools or set recurring reminders. It helps to have a process for following up on overdue invoices—often a polite email or phone call first, before things get serious. Most customers actually appreciate a reminder; life gets busy, and paperwork piles up.
When invoices go ignored for too long, that’s when you risk never seeing your money. Have someone on your team keep a close eye on outstanding bills, and don’t be shy about following up.
Building a Payment Collection Strategy
At some point, every company has to chase payments. A solid collection strategy isn’t just about sending angry letters. Start gently, with reminders that are friendly. If that doesn’t work, maybe escalate to a firmer tone, or even offer a payment plan.
Larger companies sometimes use automated systems—text messaging, emails, and scheduling calls. That keeps reminders timely and consistent, while letting the finance team focus on bigger issues. If you have a lot of small accounts, automation can be a lifesaver.
But even with the best tools, don’t forget the personal side. Sometimes, a real conversation uncovers the reason for a delay—and that can lead to a solution.
Dealing with Late Payments without Burning Bridges
Chasing down late payments can be uncomfortable, but it’s part of doing business. The first thing to remember is that communication matters. This isn’t about harassing customers—it’s about solving a problem together.
Start by checking in. Maybe the invoice got lost, or there’s a temporary issue. If payment is still not coming, consider payment plans, or even suspending additional credit until the account is settled. Legal action should be a last resort; it’s expensive, slow, and rarely restores relationships.
Sometimes, you just have to accept a bad debt and move on. The key is learning from it and adjusting credit policies so it doesn’t keep happening.
Keep Reviewing What’s Working (and What’s Not)
Credit control isn’t a “set it and forget it” process. People, businesses, and whole industries change. Review your credit control policy at least once a year. Check what’s working—are late payments down? Has cash flow improved?
Talk to your team. They often know where roadblocks appear or where policies get ignored because they don’t fit real life situations. Use basic performance indicators—like days sales outstanding (DSO)—to track improvement.
There are lots of tools that help with this, from spreadsheets to automated dashboards or ERP systems like Vihaari Software. Measuring results turns credit control from a guess into real business intelligence.
Training and Empowering Your Team
Even the best policies can fail if your team isn’t trained. It’s not just the finance folks either. Sales teams need to know which customers are credit risks and what terms to offer. Customer service should feel confident answering simple payment questions.
Empowering staff helps too—give them clear instructions and the tools to act quickly if they spot trouble. Use real examples in training to show them how certain decisions impact the bottom line.
Celebrate small wins. When the team gets a problem payment collected or spots a risk early, let them know it matters. That builds confidence and keeps everyone focused on the long game.
Wrapping Up: The Real Perks of Credit Control
No business loves chasing money, but ignoring credit control almost always leads to bigger problems. The real win is a steady cash flow, fewer nasty surprises, and solid relationships with your best customers.
If your credit control process feels creaky or isn’t keeping up, don’t panic. Regular tweaks can get you moving forward. Most companies don’t need fancy solutions—just clear rules, a bit of discipline, and a team who knows what’s expected. Strong policies aren’t just for finance. They help you focus on the work you actually care about, keep your business healthy, and free up energy for growth.
And there’s always room to get a bit better. As more companies switch to digital tools and automate routine tasks, keeping your credit control policies fresh and practical can make the day-to-day smoother for everyone.