The Profitability of the Ho-Hum and Hum-Drum of Credit Practices
Have you ever looked at your receivables and asked ‘Why bother’, stressing that your efforts are wasted?
The majority of customers do pay timely – some may need extra prodding to get the money – and there will always be a small percentage of those who never intended to pay seeking to profit at your expense, and some money will simply be lost to attrition. Understanding all of these experiences and how each can affect your business will enable you to better define your own credit policy and practices which will reduce the costly unnecessary risks.
PRACTICES THAT LEAD TO PROFITABLE POLICIES
- Use credit agreements that state clearly your payment terms, dispute resolution, and mutual obligations
- Pre-screen prospective customers to make sure they are viable and worthy of your loan
- Seek cash terms when necessary – not every customer is worthy of credit terms which you are funding from your own cash flow
- Trend customer payment habits, watch for anomalous payment behavior, and if the trend is a slow-down in payment be proactive and be prepared to take appropriate action
- FOLLOW UP timely on promises, documenting such communications by email, fax, or letter to exhibit an admission of debt preventing the ‘dispute of convenience’
- Do not get lulled into a false sense of security by thinking the ‘Customer’ is your friend, they are at best colleagues seeking to make money as are you: Remember some will try but you are your company’s defense
- The ‘friendship’ card needs to be recognized as an excuse to ‘get out of jail’ free – Don’t fall for it because real friends do not abuse privileges