Credit Control for Startups: a 'Pragmatic Risk Triage' Framework and 'Good Enough' Process

Credit Control for Startups: Building Your Process

For an early-stage founder, managing cash flow can feel like a constant battle against the clock. You’re focused on building products and closing deals, but the administrative drag of chasing late payments drains precious time and creates runway anxiety. The uncertainty is corrosive: when will that big invoice actually get paid? According to Xero's 2023 Small Business Insights report, 52% of invoices from large enterprises to small businesses are paid late, turning a signed contract into a waiting game. Building a credit control process isn't about adding corporate bureaucracy; it's a pragmatic defense for your startup's financial health. It’s about creating a simple, scalable system that protects your cash without killing your sales momentum.

A structured approach to credit management moves you from a reactive, stressful cycle of chasing cash to a proactive system of managing risk. This guide provides a lightweight, effective framework for startups to implement credit control, vet new customers, set clear payment terms, and manage overdue invoices professionally. The goal is to give you control over your cash flow, allowing you to focus on growth.

When Does Credit Control *Really* Matter for a Startup?

The trigger for implementing credit control isn't tied to your funding stage, like reaching a Series A. It's dictated entirely by your business model. The moment you start offering payment terms, allowing customers to pay you *after* a service is delivered or a product is shipped, you are extending credit. That’s when you need a process. This applies to SaaS companies billing annually in arrears, professional services firms invoicing on project milestones, and any business not collecting payment upfront.

You don't need a perfect, enterprise-grade system from day one. The reality for most startups is more pragmatic: apply the 80/20 rule to focus on your biggest risks. The key question is, at what point does a single late payment become a genuine threat to your operations? A scenario we repeatedly see is a founder's month being thrown into chaos because their largest client is late. The pattern across startup clients is consistent: you need a formal process when your customer concentration risk becomes significant.

As a clear guideline, a basic credit control process is recommended when a single customer contract represents more than 10-15% of your monthly revenue. Below this threshold, the risk from one late payment is often manageable. Above it, one delayed invoice can directly impact your ability to make payroll or pay critical suppliers. At this point, a simple process becomes an essential tool for survival, not a bureaucratic nice-to-have.

Step 1: How to Set Up Credit Checks for New Customers

Founders often worry that asking for financial information or running a check will slow down the sales cycle or signal distrust. This is a primary source of uncertainty over how to set up credit checks for new customers. The solution is to reframe it as a standard, low-friction part of onboarding and to apply a level of diligence that matches the deal's size. What founders find actually works is a "Pragmatic Risk Triage" framework.

This approach segments deals into tiers to balance robust risk management with sales velocity. It ensures you protect your business from significant financial loss without creating unnecessary hurdles for smaller, lower-risk clients.

A Pragmatic Risk Triage Framework

This tiered system helps you apply the right level of scrutiny to each new customer, making your new customer onboarding finance process both efficient and effective.

• Small Deals (<$5k): For a small SaaS subscription or a one-off services project, the financial risk is low. A formal credit check is overkill and introduces unnecessary friction. A simple 'business verification' check is sufficient. Does their website look professional? Is the company registered and active on LinkedIn? This is a quick gut check to ensure they are a legitimate, operating entity before you commit resources.
• Medium Deals ($5-25k): Here, the risk becomes more meaningful. Consider a professional services firm signing a $20,000 project. A light-touch credit risk assessment for startups is appropriate. This doesn't have to be a deep forensic audit. For US companies, a basic report from Experian Business can reveal payment history and any major red flags. In the UK, services like Creditsafe or Company Check offer inexpensive, instant reports that show adverse information like County Court Judgements (CCJs). The goal is to spot obvious warning signs, not to scrutinize every detail.
• Large Deals (>$25k): When a contract represents a significant portion of your revenue, more robust due diligence is required. For a $75k enterprise software deal, a formal credit check is standard practice. In the USA, a Dun & Bradstreet report is a common tool. In the UK, a detailed report from Experian or Creditsafe is the norm. You can also ask for trade references from their other suppliers to understand their payment behavior directly.

Communicating the Process to New Customers

Positioning the credit check is key to avoiding friction. Instead of making it sound like an interrogation, frame it as a routine part of setting up their account for success. A simple, professional script works well: "As part of our standard new customer onboarding finance process, we run a quick check with our reporting partner to establish payment terms. It’s a formality we complete for all new partners at this level to ensure a smooth financial relationship." This communicates professionalism and standard procedure, not suspicion. For large professional services contracts, consider proposing milestone-based invoicing as a way to de-risk the project for both parties.

Step 2: Creating Your Customer Credit Policy and Payment Terms

Once you've assessed a customer, the next step is defining how and when they will pay. Uncertainty over how strict to be can jeopardize new deals. The key is to establish a default customer credit policy and treat it as the starting point for any negotiation. Common startup payment terms include Net 15, Net 30, Net 45, Net 60, and Payment Upfront. Net 30, for example, means the payment is due 30 calendar days after the invoice date.

Using a decision matrix removes guesswork and ensures consistency. It links the risk level you identified in Step 1 to a set of standard payment terms, creating a clear framework for your sales and finance discussions. This approach also helps manage credit limits for small businesses by tying the amount of credit extended (the invoice value) to the customer's assessed risk profile.

A Simple Payment Terms Decision Matrix

Here is a simple matrix you can adapt. This structure gives your team a clear, defensible playbook for financial discussions.

• Deal Size: Small (<$5k) | Customer Type: Any | Default Term: Payment Upfront. This is the lowest-risk option and is standard for small SaaS subscriptions or initial service retainers. It completely eliminates credit risk on smaller transactions.
• Deal Size: Medium ($5-25k) | Customer Type: Startup/SME | Default Term: Net 30. This term aligns with the typical accounts payable cycles of most small to medium-sized enterprises, making it a reasonable and common starting point.
• Deal Size: Medium ($5-25k) | Customer Type: Enterprise/Public Sector | Default Term: Net 45. This acknowledges the longer, more rigid payment runs common in large organizations and public sector bodies, showing flexibility while still managing your cash flow.
• Deal Size: Large (>$25k) | Customer Type: Any | Default Term: 50% Upfront, 50% on Net 30. This is a strong risk-mitigation payment term for significant projects. It secures initial cash flow to cover your own costs and confirms the customer's financial commitment.

Negotiating Longer Payment Terms

When a larger customer requests longer terms, such as Net 60, you aren't simply saying no. Instead, you can reframe it as a commercial trade-off. For example: "Our standard pricing is based on Net 30 terms. We can certainly accommodate Net 60, which we handle with a 3% processing fee on the invoice total to cover the financing period. Would you like me to add that to the agreement, or shall we stick with the standard Net 30 terms?" This turns a potential concession into a transparent business decision, preserving your margin and highlighting the value of your flexibility.

Step 3: Managing Late Payments with a Scalable Process

Without a system, chasing payments becomes a chaotic, time-consuming task for founders. An ad-hoc approach creates stress and lets revenue slip through the cracks. An effective process for managing late payments relies on a clear timeline that blends automation with timely personal intervention. The goal is to be persistent and professional without damaging the customer relationship.

A simple and scalable 4-touch follow-up sequence works well for most startups. This process for setting up invoicing procedures can be managed within tools like QuickBooks or Xero, supplemented by calendar reminders for manual follow-ups.

1. 7 Days Before Due Date (Automated): A gentle, automated reminder from your accounting software. The tone is purely informational. A subject line like "Friendly Reminder: Invoice #1234 is due next week" is perfect. This helps the client get the invoice into their upcoming payment run.
2. 1 Day After Due Date (Automated): Another polite, automated email. This message catches any simple oversights or instances where the first email was missed. It's still low-touch and assumes good intent. The message should state clearly that the invoice is now past due and provide easy ways to pay.
3. 7 Days After Due Date (Personal Email): This is the first human touchpoint and a critical step. The goal is to understand, not accuse. A short, friendly email from the founder or account manager is effective: "Hi [Contact], I'm just following up on invoice #1234, which was due last week. Could you please let me know the status on your end?" This personal touch opens a dialogue to uncover any issues, such as a lost invoice or a pending query.
4. 14 Days After Due Date (Personal Call): If emails don't yield a response or a payment, it's time to pick up the phone. A call is harder to ignore and is for problem-solving, not confrontation. Is there an issue with the deliverable? Did the invoice go to the wrong person? The objective is to get a firm, committed payment date. If there is a disagreement, use a formal dispute process to resolve billing issues promptly and professionally.

The pattern observed across startup clients is consistent: invoices should not age past 30 days overdue without a committed payment date. After this point, the likelihood of non-payment increases dramatically. See guidance on how to chase an unpaid invoice from the Small Business Commissioner for further steps if needed.

Practical Takeaways for Founders

Implementing credit control doesn't require a dedicated finance team or complex software. For a founder at the pre-seed to Series B stage, a pragmatic and lightweight process is all you need to protect your cash flow and build a more resilient business.

• Define Your Trigger: Don't wait until cash is tight. Once a single customer accounts for more than 10-15% of your monthly revenue, it's time to implement a basic credit control process.
• Use a Triage System: Apply diligence proportional to the deal size. A quick verification for small deals and a formal check for large ones keeps sales moving while managing risk effectively.
• Create a Payment Matrix: Standardize your payment terms based on deal size and customer type. This removes emotional guesswork from negotiations and provides a clear, consistent starting point for your team.
• Automate Early, Escalate Personally: Use tools like an accounts receivable aging report in QuickBooks or Xero for the initial, gentle reminders. Automate recurring invoices where possible; see our tool comparison. Save your personal time for follow-ups where a human touch is needed to solve a problem.

In the UK you can charge statutory interest on late commercial payments; see GOV.UK guidance for the specific rules. Ultimately, a 'good enough' process you start today is infinitely more valuable than a perfect one you never implement. It’s a fundamental part of building a resilient, scalable business. For complete workflows, see the invoicing and collections hub at Invoicing and Collections Process.

Frequently Asked Questions

Q: At what stage is a credit control process overkill for a startup?
A: A formal process is likely overkill if all your revenue is collected upfront or if no single customer represents more than 10% of your monthly income. Below this concentration risk threshold, the administrative effort may outweigh the benefit. The trigger is when a single late payment could disrupt your operations.

Q: How can I run a credit check without making a new customer feel distrusted?
A: Frame it as a standard, procedural step in your onboarding. Use neutral language like, "As part of our standard financial onboarding for all new partners, we run a quick check to establish payment terms." This positions it as a professional formality, not a personal judgment, ensuring a smooth start to the relationship.

Q: What is the single biggest mistake founders make when managing late payments?
A: The most common mistake is inconsistent, ad-hoc chasing. Waiting until cash flow is critical and then sending an urgent, emotional email damages relationships and is often ineffective. A systematic, automated, and professional process that starts before the due date is far more successful at ensuring timely payment.

Q: Is it better to offer a discount for early payment or charge a fee for late payment?
A: Offering a small discount (e.g., 2%) for early payment is generally better for customer relationships, as it frames the incentive positively. Charging late fees, while legally permissible in many regions, can feel punitive. However, framing extended terms as a paid service (a "processing fee") can be an effective middle ground during negotiations.