For any Small, Medium, or Micro-Enterprise (SMME) in South Africa, extending credit to customers is often a necessary part of doing business. It builds trust, fosters relationships, and enables larger transactions. However, offering credit without a robust system to manage it is one of the most significant risks a business can take. In the fast-paced economic climate of 2025, a single large, unpaid invoice can be the difference between a thriving enterprise and a cash flow crisis.
This is where the discipline of credit control comes in. Too often, it’s viewed as the unpleasant task of chasing debt. But this is a fundamental misunderstanding. Effective credit control is not about being aggressive; it’s a proactive and professional process that safeguards your company’s financial health from the moment you engage a new client. It is the art and science of ensuring you get paid in full, on time, every time. Mastering it is a non-negotiable skill for sustainable growth.
What is Credit Control (and Why It’s More Than Chasing Debt)
At its heart, credit control is the entire system a business uses to manage the credit it extends to its customers. It is not simply a reactive measure for when payments are late. Instead, it is a holistic process that begins long before an invoice is even issued. A comprehensive credit control strategy encompasses four key areas:
- Assessing Risk: Deciding which customers are creditworthy and should be offered payment terms.
- Setting Terms: Establishing clear, legally sound conditions for the credit you offer.
- Managing Invoices: Ensuring prompt, accurate invoicing and maintaining clear records.
- Collecting Payments: Systematically and professionally recovering outstanding funds.
Failing at any one of these stages can have severe consequences. Poor risk assessment leads to bad debt that must be written off. Vague terms lead to disputes and delays. Inefficient invoicing creates confusion. And a haphazard collections process drains your time, energy, and vital cash flow, preventing you from focusing on what you do best: running your business.
The Foundation: Setting a Rock-Solid Credit Policy
The most effective credit control happens before you do any work. A clear, documented credit policy is your first line of defence against late and non-payment. This is not about mistrusting your clients; it’s about establishing professional boundaries and clear expectations for a healthy business relationship.
- Thorough Customer Vetting: Before offering credit to a new B2B customer, perform your due diligence. For significant contracts, consider running a business credit check through a reputable South African credit bureau like TransUnion or Experian. This can provide valuable insight into their payment history with other suppliers.
- Clear Terms and Conditions: Your T&Cs are your most important legal document. They should be provided to and signed by the client before you start work. They must clearly outline your payment terms (e.g., “Strictly 30 days from date of invoice”), accepted payment methods, and the consequences of late payment. This includes your right to charge interest on overdue amounts as allowed by law.
- Setting Sensible Credit Limits: Not all customers should have the same credit limit. Base the amount of credit you’re willing to extend on their trading history with you, their creditworthiness, and the scale of their business. Start new clients with a lower limit and increase it over time as they demonstrate a reliable payment record.
The Engine Room: Efficient Invoicing and Record-Keeping
Your invoicing process is the engine of your credit control system. Any errors or delays here will have a direct impact on when you get paid. In 2025, there is no excuse for a sloppy invoicing process, thanks to powerful and affordable technology.
Using cloud accounting software like Xero or Sage is essential. These platforms allow you to create and send professional, branded invoices in seconds. A perfect invoice should be easy to read and contain all the necessary information: your company details and VAT number, the client’s details, a unique invoice number, a purchase order (PO) number if required, a clear description of the goods or services provided, and your banking details.
The golden rule is to invoice immediately upon completion of the work or delivery of goods. The sooner your client receives the invoice, the sooner it enters their payment cycle and the sooner you get paid.
The Art of Communication: A Proactive Collections Strategy
This is the stage most people think of as “credit control,” but if you’ve set your foundations correctly, it should be a smooth and professional process of communication, not conflict. The key is to be systematic and persistent. Create a timeline and stick to it.
- The Gentle Pre-Reminder (7 days before due date): Send a polite, automated email. “Hi [Client Name], this is just a friendly reminder that invoice #123 is due for payment next week. Please let us know if you have any questions.” This preempts many late payments.
- The Due Date Follow-Up (Day 0): If payment hasn’t been received, a simple follow-up is warranted. “Hi [Client Name], just a note to say invoice #123 is due today. We’d appreciate prompt settlement.”
- The First Overdue Notice (7 days late): The tone becomes firmer, but remains professional. Make a phone call in addition to sending an email. Find out if there is a problem with the invoice or if it has simply been overlooked.
- The Second Overdue Notice (14 days late): Reiterate that the account is overdue and mention that, as per your terms, interest may begin to accrue on the outstanding balance.
- The Final Demand (30 days late): Issue a formal Letter of Demand. This is a more official document that clearly states the outstanding amount and warns that if payment is not received by a specific date, you will be forced to take further action to recover the debt.
When Things Go Wrong: Escalation and Debt Recovery
Despite your best efforts, some debts will require escalation. The first step is to immediately suspend any further work or credit for the client until the account is settled. If the Letter of Demand yields no results, you have two primary options: using a third party or taking legal action.
- Debt Collection Agencies: A professional agency can take the recovery process off your hands. They have the expertise and resources to pursue the debt more effectively. The downside is the cost—they will take a percentage of the amount recovered.
- Legal Action: For smaller amounts, the Small Claims Court in South Africa provides a relatively inexpensive way for businesses to recover debts without needing a lawyer. However, legal action should always be a last resort, as it is time-consuming and can permanently damage any chance of a future relationship with the client.
Outsourcing vs. In-House: Which is Right for You?
Many SMME owners wonder if they should handle credit control themselves. Doing it in-house gives you full control over customer communication but can be incredibly time-consuming and emotionally draining.
An increasingly popular solution in 2025 is to outsource this function. A part-time bookkeeper can manage the process for you. Alternatively, you can leverage a financial service that includes credit control. An invoice factoring facility, for example, not only advances you cash against your unpaid invoices but the service often includes a dedicated, professional credit control team who will manage your sales ledger and collections on your behalf, freeing you to focus on your core business.
Conclusion: Your Key to Financial Stability
Ultimately, credit control is one of the most vital disciplines a business owner can master. In the current economic landscape, it is the guardian of your cash flow and the bedrock of your financial stability. By implementing a proactive, professional, and systematic approach—from vetting your clients to having a clear collections timeline—you transform credit from a potential liability into a powerful tool for building strong customer relationships and driving sustainable, profitable growth for your SMME.
