What is credit control and why is it important?

11th July 2022

Credit control is the process of checking customers or suppliers to determine their credit ‘worthiness’ i.e. whether they’re likely to pay you on time.

It also refers to any measures or strategy a business puts in place – such as payment plans or calculating risk – in order to manage and maintain the waiting time between when a service is given or a customer is supplied, and when the business gets paid.

Failing to use effective credit control measures could put the financial health of your business at risk, reducing your company credit score and preventing access to critical finance or client opportunities.

When poor credit control processes lead to cash flow issues, it can be difficult to pay suppliers, overheads and sometimes, employee wages. Over time, repeatedly extending large credit limits to customers who fail to meet payment deadlines could put a business seriously at risk, even resulting in liquidation.

Before entering together into any contract, it’s crucial to undertake prior research to ensure your new customer or client is reliable. Entering into a formal contract or financial relationship without due diligence could lead to problems in the future. Always run a credit check beforehand to identify any potential risk and reduce any uncertainties, especially if you’re offering high credit limits and extended payment terms.

A credit report gives you a clear understanding of previous payment patterns, helping you to determine a customer’s credit worthiness to draw up suitable payment terms and conditions for a contract. If there are no red flags, like a low business credit score or County Court Judgments (CCJs), you should be able to enter into a contract with confidence. Any issues, like a low business credit score, doesn’t necessarily mean writing off a customer – but you may want to ask for partial or upfront payment before completing any work.

Tools such as Experian Business Express were developed for this purpose. Using a powerful database, it can objectively report on the true credit status of any business. Additional functionalities such as the identity verification check provides confidence that a customer is who they say they are, by conducting searches on the directors at the business.

Find out more about Experian Business Express and the free trial/discount offer.