We’ll explore the benefits for SMEs, when outsourcing makes sense, how it differs from debt collection, and answer all the questions you might have about credit control and how to use it.
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A steady cash flow is the lifeblood of any small or medium-sized enterprise (SME), meaning any interruption to that lifeblood can be catastrophic for the patient, which in this case is a business. Even though this is common knowledge, late payments remain one of the biggest threats to a company's survival. In the UK alone, estimates suggest that SMEs are owed billions in overdue invoices at any given time. For business owners, this means wasting incredible amounts of time on trying to be a collection agency chasing down debt, or relying on emergency measures like overdrafts. This is where credit control, often called "credit management", becomes essential.
Credit control is the process businesses use to manage how and when customers pay them. It involves building a framework that ensures payments arrive on time and that cash flow remains stable and healthy. It also minimizes bad debt, which can be cumbersome on any business, particularly those without a long financial track record.
Why does credit control matter for SMEs?
SMEs are smaller and thus more susceptible to shocks. SMEs often lack the financial cushion or easy access to capital that larger firms enjoy. This means that even just a few unpaid invoices can represent a significant percentage of monthly turnover. For businesses without that much turnover to begin with, strong credit control helps ensure working capital remains available for wages, suppliers, and growth projects, while also signalling professionalism to stakeholders, making it much easier to negotiate supplier terms or secure loans.
In short, credit control is what prevents small businesses from running into serious trouble. It helps avoid bad debt, keeps cash flow moving, and reduces the need for expensive overdrafts or emergency borrowing. Just as importantly, it reassures lenders and suppliers that the business is reliable. For example, a local construction firm that carefully manages payment terms can cover staff wages on time, avoid dipping into costly short-term credit, and use that stability to negotiate better rates with its timber supplier.
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Credit control is most effective when structured as a repeatable process. Here’s what a typical cycle looks like for SMEs:
Start by running credit checks, asking for trade references, and looking at a client’s payment history. This step keeps unreliable payers from slipping through and protects your cash flow early on.
Lay down clear rules such as payment periods like 30 days, interest for late payers, and which payment methods you will accept. Having this in writing avoids disputes and gives you a legal backbone if things go wrong. A good idea is to include real-life examples when you set your terms. For example, what will happen if they owe $10,000 and they pay 3 months late? How much interest does that incur? Are there other penalties or incentives?
Send invoices as soon as work is done and make sure they are done properly. Make them clear with dates, amounts, and bank details spelled out. The faster and simpler the invoice, the faster you are likely to get paid.
Keep an eye on the books with ledgers, software dashboards, or even a blackboard in your office; using white chalk is fine. You just need to KEEP TRACK. Spotting slow payments before they snowball gives you the chance to act before a small delay becomes a major issue.
If payments stall, send reminders, pick up the phone, or apply late fees. Being proactive here often means you will get paid sooner while still keeping client relationships intact. Even putting pressure on them a little bit by following up constantly and at set intervals can result in payment being on its way vs. being chased.
Look for patterns. If certain clients or industries are always late, factor that into your credit policy. Tweaking your approach over time reduces repeat issues and strengthens your process.
SMEs can adopt a range of methods to strengthen their credit control system. Some are low-cost process changes; others involve investing in technology or partnerships.
Pro tip: Don’t wait until day 30 to act; get ahead of the situation. Sending a polite reminder 7–10 days before payment is due often nudges customers into action without damaging relationships. Then, if they miss payments, you can up that cadence of reminders to every day, every other day, or whatever you deem fit.
Most overdue invoices resolve when you apply a consistent follow-up cadence, but many people have no idea what that entails. This funnel shows the percentage resolved at each touchpoint, proving which actions deliver the biggest lift. It also helps you justify process changes, such as adding a phone call at +14 days or introducing a small late fee at a specific stage. These little changes have big impacts, according to the data.
You should refresh these percentages quarterly so the funnel reflects real performance, not just a one-off spike.
Looking at receivables by age makes risk easier to spot and helps you with your overall credit control strategy. Adding an estimated chance of collection to each bucket shows where balances are likely to slip, especially when accounts move from 30 to 60 days overdue and payment odds drop quickly.
This view helps teams decide who to call first, when to escalate, and which accounts might need tighter limits or shorter terms. Updating the probabilities every quarter keeps the picture grounded in your own history instead of relying on generic industry averages. Below is a visual representation of how this works
How to read & act on this chart:
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Strong credit control delivers benefits beyond fewer overdue invoices; it shortens the time to cash, reduces write-offs, and smooths working capital. This allows you to fund things like payroll, stock, and projects without leaning on overdrafts or borrowing from friends and family. It also builds a record of reliable collections, which helps when negotiating supplier terms or applying for finance. Internally, it cuts admin time spent chasing, improves cash-flow forecasting, and lowers stress, freeing you to focus on growth.
The point of credit control is to lower your DSO. DSO, or Days Sales Outstanding, measures how long it takes to collect payments after a sale. A lower DSO means invoices are paid faster, and less money is stuck in receivables. That freed-up cash can then be used for payroll, buying stock, or funding growth. Turning days into pounds makes the value of strong credit control easy to see. There is even a formula you can use to see how time saved = GBP.
Formula:
So as you can see, with proper credit control, you can unlock an incredible amount of cash which would otherwise be inaccessible. This cash can be used for things such as investments to make the business more profitable and efficient.
Some SMEs choose to outsource credit control, either fully or for certain accounts. This can free up time, add specialist skills, and keep customer relationships professional and above. It is not the right move for everyone, but in the right context, it can make collections smoother and reduce strain on the team. So, is outsourcing right for you? Well, that depends....
Outsourcing tends to help when growth is outpacing back-office support, invoices are slipping through the cracks, or overdue balances keep piling up. If you are understaffed and life seems hectic, it might be a good idea to outsource this to a third party. It can also be easier if one person is handling everything from bookkeeping to credit control. If high-value clients need a neutral point of contact, or if disputes are frequent and require a clear audit trail, then a professional 3rd party is probably the way to go. There are some drawbacks, however, as delineated below.
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