Wholesale and distribution businesses run on credit. Your customers don’t pay upfront. They pay later. Sometimes much later.
That’s fine when everyone pays on time. But they don’t always.
Late payments hurt your cash flow. Bad debts hurt your profits. Chasing money takes time you don’t have.
Good credit control fixes this. Here’s how to do it.
Why credit control matters
Let’s do some quick math.
You sell $100,000 per month on 30-day terms. If customers pay on time, you have about $100,000 in receivables.
But what if they pay in 60 days instead? Now you have $200,000 tied up. That’s an extra $100,000 you can’t use.
Where does that money come from? Usually a bank loan. Or you delay paying your own suppliers. Or you can’t buy inventory you need.
Late payments cost real money.
And then there’s bad debt. Customers who never pay. Every dollar of bad debt comes straight out of your profit.
The basics of credit control
1. Set credit limits
Every customer should have a credit limit. This is the maximum amount they can owe you at any time.
How to set limits:
- New customers: Start low. Maybe $1,000 to $5,000. See how they pay.
- Established customers: Based on their history with you. Good payers earn higher limits.
- Big customers: Never give more credit than you can afford to lose.
Put the limit in your system. When a customer hits their limit, no more orders until they pay.
2. Define payment terms
Payment terms say when customers should pay.
Common terms:
- Net 30: Pay within 30 days of invoice
- Net 60: Pay within 60 days
- COD: Cash on delivery (no credit)
- 2/10 Net 30: 2% discount if paid within 10 days, otherwise full payment in 30
Pick terms that work for your industry and cash flow needs. Be clear about them upfront.
3. Track aging
Aging shows how old your receivables are. Group them by time:
- Current (not yet due)
- 1-30 days overdue
- 31-60 days overdue
- 61-90 days overdue
- Over 90 days overdue
The older the debt, the harder it is to collect. Focus on stopping things from getting old.
4. Follow up consistently
Don’t wait for invoices to get stale. Have a process:
Before due date: Send a reminder. “Your invoice is due in 7 days.”
On due date: Another reminder. “Payment is due today.”
7 days late: Phone call. “Just checking in on invoice #123.”
14 days late: Formal letter. “Your account is past due.”
30 days late: Credit hold and escalation.
Be consistent. Every customer. Every time.
Setting up credit control
Step 1: Know where you stand
Run an aging report. See who owes you and how old it is.
You might be surprised. That customer you think pays well might have $50,000 sitting at 60 days.
Step 2: Set limits for everyone
Go through your customer list. Set a credit limit for each one. Base it on their history and how much risk you can take.
Don’t skip this. Every customer needs a limit.
Step 3: Put it in your system
Your software should enforce credit limits. When a customer is over their limit or has overdue invoices, orders should be blocked. Or at least flagged for review.
If your system can’t do this, you need a better system.
Step 4: Train your team
Sales people don’t like credit holds. They want to ship orders and make customers happy.
Help them understand why credit control matters. Give them tools to check credit status. Include them in decisions about exceptions.
Handling overdue accounts
Start early
Don’t wait 60 days to start chasing. The older a debt gets, the less likely you are to collect.
First contact should be within a week of the due date.
Be direct but professional
“Hi, this is Jane from ABC Company. I’m calling about invoice #1234 for $5,000 that was due on January 15th. Can you confirm when we can expect payment?”
Direct. Not angry. Not apologetic.
Get commitments
Don’t accept “we’ll pay soon.” Get specific dates.
“Can you commit to payment by Friday?”
Write it down. Follow up if they don’t deliver.
Document everything
Keep notes on every call and email. What was said, what was promised, when.
If things go wrong later, you’ll need this history.
Know when to escalate
Some accounts need more than phone calls. Options include:
- Payment plans for customers who are struggling
- Collection agencies for customers who won’t pay
- Legal action as a last resort
The key is knowing when to move from one stage to the next.
Preventing problems
Check new customers
Before giving credit, check their history. A quick credit check can save you thousands.
Ask for references. Talk to other suppliers. Look for red flags.
Watch for warning signs
Customers who:
- Start paying slower
- Dispute invoices frequently
- Are hard to reach
- Make lots of small payments instead of clearing invoices
- Have sudden changes in ordering patterns
These might be signs of trouble. Pay attention.
Review limits regularly
A customer’s situation changes. Someone who was low-risk last year might be struggling now.
Review credit limits every 6 months. Adjust based on current behavior.
The role of software
Good credit control is hard without software. You need to:
- See credit limits and balances instantly
- Block orders automatically when limits are exceeded
- Run aging reports quickly
- Track who called whom and when
- See the full picture for each customer
Trying to do this with spreadsheets and memory doesn’t scale.
Magnofy does all of this. Credit limits are enforced automatically. Aging is visible in real time. Your team sees who needs attention without digging through files.
The bottom line
Credit is part of the business. But that doesn’t mean you have to be a bank.
Set clear limits. Define payment terms. Track aging. Follow up consistently.
Do these things well and you’ll have better cash flow, fewer bad debts, and less stress.
Your customers will respect you for it. The ones who don’t were probably bad customers anyway.
Need better credit control? Get a demo and see how Magnofy helps you manage customer credit and collections.
