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Selecting clients for credit control – who needs it most?

Advances in accounting automation mean that there is a current focus on how accountants can add value to their clients. It’s a key way to attract and retain clients. Offering outsourced credit control is just one extra service that accountants can add to their armoury. But equally important as offering value add services is choosing the right clients to approach. Not all clients are the same and they have unique requirements.

Read on for our guide to selecting the right clients to offer outsourced credit control. By choosing the right clients first time around you can make sure you aren’t wasting effort and giving extra value to the clients who really need it.

These points but they can be crucial when trying to decide which clients are most in need of your help with their credit control

What are the top warning signs that suggest a client is in need of credit control help?

  • They don’t start the collections process until 90 days overdue

A big warning sign of bad credit control is waiting until an invoice is 90 days overdue before starting the collections process. You’re far more likely to successfully collect a debt if you pursue collection during the first 30 days. In fact, debts that go 90 days past due have only a 75 percent chance of getting collected, while 120-day debts are only 50 percent likely to be paid. Fast, polite debt collection practices are much more likely to get you paid than waiting for customers to put a check in the mail. If you have clients that wait several months before getting serious about being paid, then you should be thinking about stepping in to help them with credit control.

  • They don’t know their DSO

DSO or Days Sales Outstanding is the average time that passes between invoicing a client and receiving payment.  A high DSO represents a credit control issue because it suggests that customers don’t pay in a timely manner. Every industry has an average DSO. For some industries this is low, but for others it can be fairly huge. Your clients’ DSO should ideally be close to the average for their industry, or even better!

The smaller the business, the shorter their DSO should be. Some large enterprises can manage longer DSOs because they have more revenues and assets. Small businesses, on the other hand, rely on their accounts receivable to maintain a steady cashflow. Small client + high DSO = ideal client for outsourced credit control.

  • Those with a high volume of invoices outstanding

These clients may want to consider introducing invoice automation. By sending out reminders at set time intervals and having clear payment terms, their customers have plenty of warning of when they are due to pay an invoice. We suggest emailing invoices 7 days before due, then again the day they’re due, with a follow up email after the due date.

Clients will benefit from sending out invoices as soon as possible and with shorter payment terms. By reducing the payment term by half – from 30 days to 14 days, for example – a business halves the time they have to wait to follow up on an outstanding payment or, when necessary, to start recovery procedures.

  • Those with high debtor ledgers

Clients should be strict with customers by recognising which companies are repeat offenders and introduce penalties for late payments. This could involve interest charges or ceasing work on their project until they have settled all outstanding payments.

Having any of these red flags is a clear sign that a client is in need of a little extra help. Consider adding them onto credit control software, which will allow invoice automation and help them to see which of their customers are credit risks. Automated credit control software allows you to easily see which of your clients are most in need, by showing you their average debtor terms, how many invoices are outstanding and the total amount of debt outstanding.

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