When a small business should hire its first credit controller

For many small business owners, chasing invoices starts as a minor annoyance but quickly snowballs into a major bottleneck. In the early days, a quick email or phone call is all it takes. But as your business grows, the time you spend chasing late payments is time you’re not spending on sales, product development, or strategy. This article breaks down the key signals that show you've outgrown manual, founder-led credit control and need a dedicated system, whether that's a person, software, or a combination of both.

The Tipping Point: From Ad-Hoc Chasing to a Proper System

Every founder wears multiple hats, and "reluctant credit controller" is one of the most common. When you only have a handful of clients, you know their payment habits intimately. You can afford to send a personal, friendly reminder and it usually gets the job done. This manual approach feels effective because, at a small scale, it is.

The problem is that this process doesn't scale. As your customer base expands from 5 to 50, and your monthly invoices grow from 10 to 100, the ad-hoc method begins to crack:

• Invoices slip through the net: You forget who you've chased and when.
• Chasing becomes inconsistent: You only chase when cash flow is tight, not as a regular process.
• The opportunity cost skyrockets: Every hour spent trawling through your accounting software to see who owes what is an hour you could have spent winning a new project worth thousands ofpounds.

The tipping point arrives when you realise that your business's growth is being actively held back by poor cash flow, and that you are the bottleneck. Moving from this reactive, manual chasing to a proactive, systematic approach is a critical step in maturing your business.

Key Signals You've Outgrown Manual Chasing

How do you know you’ve reached that tipping point? It’s not just a gut feeling. There are clear quantitative and qualitative signals that your current process is no longer fit for purpose.

Quantitative Signals: The Numbers Don't Lie

Data provides the clearest evidence. If you track these metrics, you can spot the problem before it becomes a crisis.

1. Invoice Volume and Complexity There's no magic number, but a common threshold is when you're issuing more than 20-30 invoices per month. At this volume, manually tracking each one's due date, payment status, and chasing history in your head or a simple spreadsheet becomes a significant administrative burden. It's not just the volume, but the complexity; dealing with 30 different clients with different payment terms and contact people is far harder than dealing with 5 large clients on uniform terms.

2. Days Sales Outstanding (DSO) is Climbing DSO is one of the most important metrics for cash flow. It measures the average number of days it takes for you to collect payment after a sale has been made.

• How to Calculate It: (Total Accounts Receivable / Total Credit Sales) x Number of Days in Period.
• What it Means: If your payment terms are 30 days, a healthy DSO might be around 40-45 days. This accounts for some friction and minor delays. However, if your DSO creeps up to 60, 70, or higher, it's a major red flag. It means, on average, your clients are taking twice as long as they should to pay you. A consistently rising DSO is a clear sign that your collection process is failing.

3. Your Overdue Percentage is High Take a look at your aged debtors report in your accounting software. What percentage of your total accounts receivable is overdue? And more specifically, what percentage is over 60 or 90 days late? While a small percentage of late payments is normal, if more than 15-20% of your debtor book is consistently overdue, your chasing method isn't working. You aren't just providing services on credit; you're effectively giving out interest-free loans.

4. Overdue Debt Exceeds Key Operating Costs Revenue can be a misleading indicator. A £1m turnover business with 10 large corporate clients may have an easier time with collections than a £250,000 business with 200 small clients.

A more powerful way to frame it is to compare your overdue debt to your monthly outgoings. When the total amount of money tied up in overdue invoices is greater than your monthly payroll, your rent, or your VAT bill, you have a critical problem. Your clients' late payments are directly jeopardising your ability to operate.

Qualitative Signals: The Hidden Costs

The numbers tell one part of the story, but the day-to-day operational strain tells the other. These qualitative signs are just as important.

• Founder/Senior Staff Time is Sapped: You, or other senior members of your team, are spending more than a few hours every week on administrative payment chasing. Calculate the real cost of this. If your time is worth £100 per hour to the business, spending five hours a week on chasing costs you £500 a week, or £2,000 a month.
• Inconsistent Chasing: You're so busy delivering work that you let chasing slide for two weeks. Then, a big bill lands and you spend a whole day frantically calling and emailing everyone who is overdue. This "feast or famine" approach to credit control is unprofessional and teaches clients that they only need to pay when you shout loudly.
• Strained Client Relationships: Are you finding it difficult to have a positive sales or service conversation with a client because you know you need to ask them for money? As a founder, it's hard to be the 'good cop' (service provider) and the 'bad cop' (debt collector) at the same time. This internal conflict can lead to overly lenient or awkwardly aggressive chasing, both of which are damaging.
• Constant Cash Flow Crunches: The most obvious signal of all. You know you're profitable on paper, but you're constantly struggling to meet payroll, pay suppliers on time, or clear your quarterly VAT bill. You're having to dip into your overdraft or delay crucial investments because the cash you've earned is sitting in your clients' bank accounts, not yours.
• You Can't See the Full Picture: You have a feeling about which clients are bad payers, but you don't have concrete data. You can't easily answer questions like: "Who are my five worst payers?", "What's our average time to get paid?", or "How much of our debt is over 90 days old?". Without this data, you can't make informed decisions about who to offer credit to or where to focus your chasing efforts.

The Options: What to Do When You Hit the Bottleneck

Once you've identified that manual chasing is a bottleneck, you have three main paths forward.

Option 1: Hire a Part-Time Credit Controller

This involves recruiting someone specifically to manage your accounts receivable. For a business with significant invoice volume (e.g., 50-100+ invoices/month) and some complex accounts, this can be a great option.

• Pros: You get a dedicated professional who is an expert in collections. They can handle difficult phone calls, negotiate payment plans, and manage legal proceedings if necessary. They bring a level of focus and expertise that a founder simply doesn't have time for.
• Cons: This is the most expensive option. You have to account for salary, National Insurance contributions, pension, holiday pay, and sick leave. The recruitment process itself takes time and effort.
• Typical Cost: A part-time credit controller working 10 hours a week could cost anywhere from £600 to £1,200+ per month, depending on their experience and your location.

Cost Component	Estimated Monthly Cost (for 10 hours/week)
Hourly Rate (£15-£25)	£650 - £1,085
Employer's NI (~13.8%)	£65 - £125 (approx, thresholds apply)
Pension (~3%)	£20 - £35 (approx, thresholds apply)
Total Estimated Cost	~£735 - £1,245 per month

Option 2: Use an Outsourced Credit Control Service

This is where you pay a third-party company to manage your credit control on your behalf. They act as your accounts receivable department.

• Pros: You get instant access to a team of experts without the HR overhead of hiring. It's often more flexible than hiring, allowing you to scale the service up or down as needed.
• Cons: It can be costly, with pricing models often based on a percentage of the debt collected or a fixed monthly retainer that can be higher than a part-time salary. You also have less direct control, and the service can feel less integrated with your own company culture.

Option 3: Automate the Process with Software

This involves using a dedicated tool to automate the routine, time-consuming parts of invoice chasing.

• Pros: This is by far the most cost-effective option. It is incredibly efficient, sending polite, persistent, and perfectly-timed reminders without any manual effort. It ensures consistency and professionalism, removing the emotion from the process. It also provides valuable data and reporting dashboards.
• Cons: Software can't pick up the phone to negotiate with a particularly difficult client or resolve a complex dispute. It automates the 80% of routine chasing but still requires a human to handle the 20% of exceptional cases.

For most small businesses, the optimal solution is a hybrid approach: start with automation. A tool like InvoiceReminder can connect to your accounting software (Xero, QuickBooks, etc.) and handle the entire reminder schedule for you, from a gentle pre-due-date nudge to a firm final notice. This alone can resolve the vast majority of late payments. It frees up the founder's time to focus only on the few clients who don't respond to the automated emails and require a personal phone call. This gives you the efficiency of automation and the effectiveness of a human touch, without the immediate cost of a new hire.

Creating a Basic Credit Control Process (Even Before You Hire)

Regardless of which option you choose, establishing a solid process is non-negotiable. If you're not ready to hire or invest in software just yet, implementing these steps will still make a huge difference.

1. Set Clear Terms Upfront: Your contract and your new client onboarding process should clearly state your payment terms (e.g., "Strictly 30 days from date of invoice"). Put these terms on every single invoice.
2. Invoice Promptly and Accurately: The payment clock doesn't start until your client receives the invoice. Send it as soon as the work is complete or the goods are delivered. Ensure it has all the necessary information: a clear description of services, the correct client legal entity, a Purchase Order (PO) number if required, and your bank details.
3. Define Your Chasing Cadence: Decide on a consistent schedule for your reminders and stick to it. A professional cadence looks something like this:
   • Email 1: A friendly reminder 7 days before the due date.
   • Email 2: A polite reminder on the due date.
   • Email 3: A slightly firmer chaser 7 days after the due date.
   • Email 4: A firm notice 14 days overdue, mentioning potential late payment charges.
   • Phone Call: If no response, call them between 14-21 days overdue.
   • Email 5: A final notice / letter before action 30 days overdue.
4. Know Your Statutory Rights: For business-to-business (B2B) transactions in the UK, the law is on your side. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to charge interest and compensation, even if it's not in your contract.
   • Statutory Interest: You can charge interest at 8% plus the Bank of England's base rate. You can find the current base rate on the Bank of England's website.
   • Fixed Compensation: You can also add a one-off compensation charge for each late invoice. The amount is set by law:
     • £40 for debts up to £999.99
     • £70 for debts between £1,000 and £9,999.99
     • £100 for debts of £10,000 or more Mentioning this right in your firmer reminders can be a powerful motivator. This is general guidance, not legal advice, and specific contract terms may vary.

The Cost of Inaction

Doing nothing is the most expensive choice of all. Consider a business with £20,000 in invoices that are over 30 days late.

The cost isn't just the missing £20,000. It's the tangible cost of funding that shortfall, perhaps through an overdraft with an interest rate of 10% or more. It's the intangible opportunity cost – that £20,000 could have been reinvested in marketing to generate £50,000 in new sales, or used to buy equipment that improves efficiency.

Finally, it's the cost of your time and stress. If you continue to spend five hours a week on a task that could be automated or delegated, you are actively choosing to spend your most valuable resource on a low-value administrative chore, holding back your own business in the process.

Frequently asked questions

At what revenue level should I hire a credit controller?

It's less about a specific revenue figure and more about invoice volume and complexity. A service business with a £200,000 turnover from 40 small clients per month may need help sooner than a £1 million turnover business that invoices 5 large corporate clients. The key indicators are a rising Days Sales Outstanding (DSO), a high percentage of overdue debt, and the number of hours you personally spend chasing payments each week.

What's the difference between a credit controller and an accountant?

An accountant primarily deals with financial reporting, tax compliance, budgeting, and strategic financial planning (looking at the past and future). A credit controller has a very specific, operational role: managing the accounts receivable ledger to ensure invoices are paid on time. Their entire focus is on converting sales into cash in the bank as efficiently as possible.

Can I charge interest on late payments in the UK?

Yes, for most UK B2B invoices, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest and compensation for late payment. You can charge interest at 8% plus the Bank of England base rate, plus a fixed compensation sum of £40, £70, or £100 depending on the invoice value. This applies even if it is not explicitly stated in your contract terms.

Is credit control software difficult to set up?

No, modern cloud-based automation tools are designed for small business owners, not IT experts. They typically connect directly to your accounting software like Xero, FreeAgent, Sage, or QuickBooks in a few clicks. The system then automatically imports your customer data and outstanding invoices, and you can activate a pre-built schedule of reminder emails in minutes.

Does using a credit controller or automation damage client relationships?

Quite the opposite. A professional, consistent, and polite process for chasing payments is respected by clients. It's far less damaging than the inconsistent, emotional, and sometimes awkward chasing that a stressed founder might do. It separates the business transaction from the personal relationship, which helps preserve goodwill while still ensuring you get paid on time.

What is a good Days Sales Outstanding (DSO) figure?

A good rule of thumb is to aim for a DSO that is no more than 1.5 times your standard payment terms. For example, if your terms are 30 days, a healthy DSO would be 45 days or less. If your DSO is consistently creeping up towards 60 days or more on 30-day terms, it’s a clear sign that your credit control process needs urgent attention.

Automate the Effort, Focus on Growth

Manually chasing invoices is a low-value task that steals time directly from high-value activities that grow your business. The first and most cost-effective step to solving this bottleneck is automation. A system like InvoiceReminder can take over the repetitive, time-consuming work of sending reminder emails, ensuring your process is consistent, professional, and tireless. It connects directly with Xero, FreeAgent, Sage, and QuickBooks to automate your invoice chasing based on rules you control. This frees you to focus on strategy, sales, and service, using your time to grow your business instead of just funding it. At no cost right now for the core plan which includes unlimited email reminders, it’s a powerful first step for any UK business looking to improve its cash flow.