Controlling when you get paid is a huge component in the survival--or failure--of your business. Whether extended to new or existing customers, you need to
have a credit policy
Think about when your bills are due and make sure when you set up your payment schedule, you get paid in time to pay your bills. You may also be interested in taking advantage of pre-pay or early-pay discounts. This can save you hundreds of dollars over the course of a year.
Your credit policy should inform your customers how and when you want to be paid as well as the resulting consequences if the payments are not made as agreed. You should take a good look at your accounts receivables aging report to determine whether customers are becoming slower in their payments as the economy falters. Follow up with those customers now and get them back on track. If you wait, you may not be able to get them back on track and might end up with more bad debts write-offs than you can afford. You should be proactive to improve your accounts receivables. You can do this many different ways. For example:
- Offer discounts.
- Get 50 percent down.
- Check new customers' credit.
- Sell old, outdated inventory.
- Issue invoices immediately.
- Follow up right away with slow-paying customers.
Smart business owners know that a strong credit policy can save them a lot of money, especially as uncertainty in the economy increases. This is not just happening in the United States. All over the world businesses have their eye on their accounts receivables.
Be sure to evaluate how your credit policy is working for your business, and make sure you don't get caught when the economy slips. It's up to you to make sure you get paid for the work you do.
Here are two easy ways to strengthen your policy today:
- Make sure every account is up-to-date on payments; if they aren't, start working to get them up-to-date now.
- Make sure you have a signed credit application with current contact information on file for every customer.
The first item could take you some time, depending on how many past-due accounts you have. If you don't have that many, you will get the best results by calling them. Start with the customers who owe you the most money and working your way down the list.
If you have too many to call and it would take you days, pick out the highest dollar amount accounts and the oldest past due balances and just call those. Send collection letters to the rest, and include a self-addressed envelope for the payment.
If you don't have time to do any of those things, don't worry, you can still do something. You can outsource this task to a debt collection agency that will do it all for you and mail you a check each month less the company's commission on what is collected. If the agency doesn't collect anything, you don't pay anything.
The second item is a bit easier; you can just do a mailing to all customers and send them a new credit application with a cover letter informing them that you are updating your files. Be sure to check each customers' credit limits and adjust accordingly, especially on accounts that have started to become past due.
Michelle Dunn is an award winning author and columnist and has been called the nation's authority on collecting money. She is the founder and CEO of Michelle Dunn's Credit & Collections Association, one of the top 5 women in collections, and one of the top 50 most influential collection professionals in the industry.