Why You Need a Credit Policy Clearly outlined credit procedures will protect your business when customers don't pay.

By Michelle Dunn

Opinions expressed by Entrepreneur contributors are their own.

In this tough economy, many business owners are finding that customers who have always paid on time are struggling to stay current. Other customers who were already slow payers are falling farther behind or are unable to pay at all.

Now is the time to create a credit policy to keep your existing customers, get paid and stay in business. This policy should include clearly outlined procedures and actions for when someone can't pay so you can immediately take steps to help your customer and protect your business.

The first step is to look at your accounts receivable report and ask yourself who owes you money, how much they owe and how past due is the account. Those delinquent accounts should take precedence; work on making calls to get them paid. Do not let any other customers charge anything until you check their credit; doing this will help you minimize your risk and go a long way toward presenting your company as being serious about your business.

Becoming the squeaky wheel serves two purposes: It lets your customers know from the get-go that you are serious and will not let anything slide. It also gets older, past-due balances paid off, because squeaky is annoying, and the only way to make it go away is to pay the bill.

What do you do now when a customer becomes past due? Are you running into problems when you contact your past-due customers? What have you tried to do to get paid or to get control of your accounts receivable?

Immediately make a list of things you want to happen when a customer becomes past due. You may want to make a personal visit, send a friendly reminder or make a phone call. Decide what will work best for you and what you have the time to execute. Write down three steps you can take when an account gets past due, post it by your computer and start doing those things each time someone goes beyond the terms agreed on.

Next, make a list of things to do when customers give you some common excuses. That way you aren't thrown off guard when it happens; you'll have an answer ready and an action plan. For example, when a customer tells you the check is in the mail, don't just say "OK" and hang up. Step one might be to ask for the check number, then ask for the check amount. I have been doing collections for a long time; many times debtors will tell you the check is in the mail and when it arrives, it is for an amount less than they owe. Verify the dollar amount. If they tell you a lesser dollar amount than you are looking for, ask them why it is less and set up a payment time for the balance. You can also ask when and where it was mailed. Post these questions next to your computer so that when someone gives you this excuse, you are ready and can take the next step immediately.

Something to think about: 50 percent of a credit manager's time is spent resolving people problems related to poor communications and follow-up.

E-mail Michell for help setting up your credit policy.

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.

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