If you are a business owner you know that you sometimes have customers that owe you money and you may struggle with trying to collect that money.
It is very frustrating not getting paid after you complete a job. Perhaps you ship an order and then you have to make collection calls or maybe you just ignore the problem and hope the bill will be paid.
Credit management is the management of your businesses credit, accounts payable and receivables. Correctly managing your businesses credit creates an outline of policies and procedures that will provide your customers with options when they cannot pay in full and on time.
Effective credit policies provide an outline or plan that will enable you to adequately provide reasonable credit limits for customers who have revolving credit. This plan would also include procedures on how to deal with past due or late paying accounts and how to eliminate them from the books.
You want to have guidelines to legally collect money owed to your company that is lost due to late payers, non-paying customers, and bad checks. You want to have a streamlined system that will maintain timely contact with all of your late paying customers. These procedures help you to be aware of when accounts are becoming past due and to help you avoid carrying bad debt on the receivables.
Business owners all have different types of business, but all can extend credit, so it should only make sense that no two credit policies will be the same. One major difference is if you have a service or a retail business. Your credit policy should use multiple facets to cater to prospective customers but also protect you and your business.
You are limited in what you can and can’t ask a prospective customer in order to extend them credit. You need to be aware of what these questions are and what the laws are before you create your credit policy. Your credit policy helps to filter customers so you don’t have to spend your time chasing your money.
Your best policy will be short, easy and to the point, it will avoid long winded statements and a lot of legal or big words. Always create your policy and forms with the customer in mind, the easier and the clearer, the better.
Michelle Dunn is an award-winning author and columnist frequently featured in the Wall Street Journal, CNN and Forbes. Visit her online at MichelleDunn.com & Credit-and-Collections.com
