Credit Policy Makes Uncollectible Accounts Obsolete

A sale that cannot be paid is a waste of resources. A good credit policy can make uncollectible accounts obsolete. Make sure your credit policy is rock solid. If the percentage of uncollectible sales is more that one percent, your business is moving towards non-profit. That may seem strong, but really, are you in business to make a profit? Even paying for one percent of the cost involved in moving product and invoicing the customer is useless cost. Instead, use the percentage as a measure of how much time you should spend managing credit and collections.

 

However, the best way to manage credit and collections is to stop extending credit to unworthy buyers. To make sure that your business realizes the profit from sales, use the checklist to analysis your current credit policy. Redo the credit policy if necessary to safeguard your cash.

 

• There is an established amount for new customers that can be invoiced without a credit application.
• Current customers have credit applications on file that are newer than three years old.
• Customers who have not ordered in the past year are placed on hold. When an older customer wants to purchase, ask the customer to complete the business credit application before processing the sale.
• A report is generated at least every quarter listing invoices equal to and below the amount sold without a credit application. This report does not include credit worthy customers with small orders. Based on this report, these customers are placed on hold until the credit application is received.
• Customers have the option to pay by credit card if they don't want to complete a credit application.
• The sales commission strategy includes a procedure for uncollected sales.
• The current business credit application clearly states the seller's payment terms, return policy and dispute policy. (If you don't have a standard business credit application, or your application is out of date download the template from Microsoft.)
• The business/trade reference includes how many years the applicant has worked with the business/trade reference. Follow up with the business/trade reference includes the high credit and number of days to pay for the applicant.
• The business contact information section includes information from the applicant regarding previous businesses under a different name in the past five years with information on the previous business name, start date and stop date.

Organizations can guard their cash and improve profit by aggressively pursuing a rock solid credit policy. Any customers lost probably wouldn't pay anyway.