As a business owner, it is understandable that you want to serve or sell to as many customers as possible. You have probably also worked very hard to build a relationship with your customers over time. One thing you have worked even harder doing is building your business and becoming successful and profitable. One way to safeguard your business cash flow is by implementing and sticking to a clear, effective credit policy. Below are five tips for building a credit policy for your business:
Gather Information: Before extending credit to anyone, make sure to gather some information about the person or company you are planning to extend credit to. In the event that your customer does not repay the debt as agreed, you need to have as much information as possible for your internal collection team or for a collection agency you may hire. The following key pieces of information are very helpful for debt collections:
- Full Name & Spouse’s Full Name
- Employer & Spouse’s Employer
- Home and Work Phone Numbers
- Mobile Phone Numbers
- Some Personal References/Family Members
Check Credit and/or Have a Credit Agreement: The most sure-fire way to see someone’s credit worthiness is to see it for yourself. This can be costly, so another option is to have them sign a credit or repayment agreement. Everything is more secure when it is in writing. If you extend credit to someone, have an agreement in place. This, aside from just an invoice or statement (which may not have their signature on it) will work in your favor if the account goes delinquent and to collection.
Create Consequences: One way to keep people from taking advantage of you is to have consequences for slow-paying and non-paying customers. The most common method of doing this is to have a late or returned item fee. Make sure these fees are within your state’s laws, and include them in the credit application or service agreement your customer will sign before being granted credit. Also, warn them that if they do not pay as agreed, you may seek the help of a collection agency.
Accept Credit Cards: Are you currently only taking cash or checks, but extending credit to customers with your own resources? For newer or more risky customers, try accepting credit cards so credit risk is on the credit card company and not your own business.
Stick To Your Credit Policy: Your credit policy is not going to be any good if you do not follow it with every single customer. Every exception made to your credit policy is a potential risk. If you become comfortable with enforcing your credit policy 100% of the time, you are going to dramatically reduce your potential losses.
Following these tips should help you reduce your risks when extending credit. Inevitably, some accounts may still become an issue. If you are in need of a competent, secure, nationally licensed collection agency, be sure to check out Optio Solutions, LLC for more information on flat-fee or contingency based collections