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Collection Prevention and Your Credit Collection Policy

Collection Prevention Part VI

You Need a Plan!

Or … and please don’t stop reading here “a Credit Collection Policy”. 

Seems obvious enough right?  And yet, most of the small business owners I’ve worked with don’t have one. It really doesn’t have to be a big deal, a simple 1 page document outlining your Credit Collection Policies and what you’ll do with past due invoices – and, very important, when you’ll do it – will suffice. 

How to Write a Credit Collection Policy Step – by – Step available here. 

Did I hear you say “I’m too small, I don’t need a credit collection policy”?  What was that? All your orders go out COD?  You get paid upfront? You’ve been in business for 30 years and never had a late invoice? You can stop reading … I don’t want to waste your time. 

I’m writing to the small business owner or professional who struggles with late paying customers, who says to himself “if everyone paid me on time I’d be okay.”  To the practitioner who couldn’t say no, put his customer/patient on a payment plan and just noticed they haven’t made a payment in 6 months.  To the small business owner whose customers used to pay at 30 to 35 days and now they pay at 45 to 60 days.

To those who would be okay if everyone paid on time!  

Everyone doesn’t pay on time.  If you actually believe they do – again this article is not for you.  This article is for those of you with the average 30%+ who pay late and are killing your cash flow.  For those of you for whom delivering on time and getting paid 45, 60 and 90 days late is NOT okay. 

You Need a Plan/Credit Collection Policy …

How to Write a Credit Collection Policy Step – by – Step available here. 

And that plan begins with a couple of basic, essentially philosophical decisions.  I say they’re philosophical because these first two decisions stem from who you are and how you view the world and people and business.  If you make these two decisions based on what you think you should do, or what you read in a book, or heard in a seminar, you won’t follow thru with all the decisions that follow – this is your foundation so keep it real.

Here are the two questions;

  1. How tough or strict will you be when extending credit? 
  2. How touch or strict will you be when collecting past due invoices?

Considerations …

If you’re strict extending credit you’ll spend less time collecting but you may restrict sales.  Conversely if you extend credit liberally you’ll sell more but  you’ll spend more time on collections. 

If you extend credit liberally in order to maximize sales, you’ll find you have more collection issues.  That’s not necessarily a bad thing, but it requires a plan i.e. decisions made in advance about how and when you’ll deal with late payers. 

If you don’t consider credit at all or you extend credit liberally and don’t make up for it with some good decisions about how to deal with late invoices you’ll have higher bad debt. 

You’ll have costs whichever direction you choose.  Either you spend the time and money upfront to check credit and make decisions that are congruent with your personal and business philosophy, or you spend the time and money to work with your customers and patients when they can’t or won’t pay on time or you have bad debt losses. 

No choice is a choice for collection issues, higher bad debt and worst of all lost customers

We’re all in business to develop customers! No customers = No business. 

Losing customers over collection issues doesn’t have to happen.  Collection prevention may not be easy but it isn’t that hard either. 

Wrapping up ….

  1. Decide if your credit extension policy will be strict or liberal – on a scale of 1 to 10 where are you?
  2. Decide if you collection policy will be strict or liberal – on a scale of one to ten – where are you?
  3. Write it down
  4. Put a title on the paper you wrote it on –

Voila! You have the beginnings of a Credit Policy:)

How to Write a Credit Collection Policy Step – by – Step available here. 

 

 

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