Credit control fails in small businesses for one reason more than any other: it happens when someone has time, which is usually when cash is already tight. A credit control routine turns it into a fixed slot in the week with clear steps, so every overdue invoice gets the same treatment whatever else is going on.
This page is about the routine and the ledger. For what to say to a late payer and when to bring in a collector, see dealing with late payers.
Before the routine can work
- Invoices go out on time, with the due date, your bank details and the customer’s PO number where they need one. A late invoice is a late payment.
- Receipts are matched daily or weekly, so the ledger shows who has really paid. Chasing a customer who paid last Tuesday damages the relationship and wastes time.
- One person owns credit control, with a named back-up for holidays.
- Payment terms are agreed in writing before work starts; see payment terms and credit policy.
The weekly routine
Pick one morning, for example Tuesday, and do the same things in the same order.
- Match the bank. Allocate every receipt since last week to invoices.
- Run the overdue list: invoices past their due date, grouped by customer.
- Act by stage using a fixed ladder (below).
- Log every contact on the customer record: date, who you spoke to, what was promised.
- Check promises. Any customer who promised payment by last Friday and has not paid moves up a stage.
A simple escalation ladder
| Days overdue | Action | By |
|---|---|---|
| 1–7 | Friendly reminder email with invoice attached | Credit controller |
| 8–21 | Phone call to accounts payable; confirm the invoice is approved and the payment date | Credit controller |
| 22–45 | Formal reminder; statement of account; mention statutory interest | Credit controller |
| 46–60 | Owner or account manager calls their contact; consider stopping further supply | Owner |
| 60+ | Final letter before action; decide on a debt collector, small claims or write-off | Owner |
Adapt the days to your terms and customers, but write them down. A ladder that exists only in someone’s head is applied unevenly.
Statutory interest. Business customers who pay late can be charged interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998. Many businesses never claim it, but mentioning it at the formal stage is often effective; see late payment penalties.
Stopping supply. If a customer is well overdue and you keep delivering, you are increasing the debt. Agree in advance who decides to put an account on stop, and tell the people who take orders.
The monthly aged debt review
Once a month, after the month-end close, run the aged debtors report (also called aged receivables) at the month-end date. It lists each customer’s unpaid balance split into age buckets: current, 1–30, 31–60, 61–90 and over 90 days overdue (or by days since invoice, depending on the report setting; use overdue for credit control).
Reading it bucket by bucket
| Bucket | What it tells you | What to do |
|---|---|---|
| Current | Not yet due | Nothing, except check large invoices were received |
| 1–30 overdue | Normal slippage | Should be handled by the weekly routine |
| 31–60 | A process problem: missing PO, dispute, approval stuck | Find the reason for each one |
| 61–90 | Real risk | Owner involvement; payment plan or stop supply |
| 90+ | Likely to be difficult | Decide: pursue formally, provide for it, or write it off |
Look beyond the buckets too:
- Concentration: one customer making up a large share of the total overdue balance is a cash flow risk even if they always pay eventually.
- Credit balances (negative amounts) are not good news. They mean money owed to customers or unallocated receipts; see old customer credit balances.
- Disputed invoices should be flagged, so they are not chased in the normal cycle; see invoice disputes and payment holds.
- Debtor days trending up over several months is an early warning; simple KPIs from bookkeeping shows how to calculate it.
Tie the report to the ledger
The total of the aged debtors report must equal the trade debtors control account in the balance sheet at the same date. If it does not, something has been posted directly to the control account by journal, or the report was run at a different date. Find and fix the difference before relying on either figure; the account itself is explained in trade debtors in the chart of accounts.
Decide on doubtful debts
For each balance over 90 days, record a decision: continue chasing, agree a payment plan, provide for it as doubtful, or write it off. Decisions to provide for or write off a debt go through bad debts in the chart of accounts, and an old unpaid debt may also qualify for VAT bad debt relief.
Measure the routine
Track two numbers monthly: the total overdue balance and the share of it over 60 days. If the routine is working, the second falls even when sales grow.