Personal Finance - Keeping control

The vast majority of artists and organisations face a delay between generating income and subsequently receiving the cash. This can be a particular problem for individual artists and freelances, for whom there is a very direct link between the generation of income and the ability to feed themselves and their families.

Consequently, among the many administrative tasks that arts professionals need to keep under control, ensuring that income from fees translates into cash in the bank is vital.

Credit control affects artists and organisations alike, it is a management issue that is often not prioritised in the way it should be. If cash is not pulled in on time to (at least) meet cash liabilities then sustainability is normally maintained by additional borrowings and/or payment delays and neither of these options is desirable. There are effectively two stages to the management of credit control, namely the initial granting of credit facilities and its subsequent management. Granting credit always carries an element of risk (the risk of not receiving the cash); credit control is about the management of that risk.

Firstly, clients should be assessed for their credit worthiness (credit scoring). The size and status of the client is not a determinant of their credit worthiness; large organisations are as likely to default as small ones. Credit scoring can be carried out using trade and bank references, Companies House information, the county court register, client visits, rumours, first impressions and credit reference agencies. The Internet is a useful tool in credit scoring and one has access to a large amount of relevant information and credit ratings. Ideally, a written agreement should be drawn up stating the terms and conditions of payment. For example, an agreement might give the number of days to pay, the rate of interest that would be levied on late payments, a statement about the legal title to goods not passing to the client until full payment is received, etc. This will be important if legal action has to be instigated.

Once the invoice is issued, then call the client within a few days (as part of a post-sales review) to check that the client is happy, that there are no problems, and that the invoice was received (and by the correct person/department). If payment is not received by the due date then reminder letters/faxes and phone calls need to be despatched. These letters or faxes should increase in severity from the friendly to potential court action by which stage, client relationships would have deteriorated. Court actions can be instigated online and are procedurally efficient.

Technology can play an important part in credit control, for example the issuing of invoices via email, setting up time alerts (Microsoft Outlook), and the production of credit reports showing outstanding invoices and days outstanding. Electronic delivery methods will quicken the collection processes, provide confirmation that the invoice was sent, and save money on consumables and postage.

Mahmood Reza is Proprietor of Pro Active Accounting.
T: 0116 224 7122
E: arts@paa.uk.com