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Every
company that offers credit to customers needs a clearly outlined credit
policy. And stick to it. Credit is not necessarily the enemy to small
businesses. It just needs to be managed wisely.
The first step to creating a credit program is creating a credit
application. Remember this document is what your business will use to
determine whether a person is eligible for credit. It should not be left to
anyone to create. Your attorney should help you create the right application
that allows you to collect interest on past-due accounts, pass collection
costs back to your customer and hold a security interest in the goods
sold.
Your application should include your policy on returns, shipping charges
and terms of credit. A section giving permission to obtain credit reports
and check trade references should be clearly outlined. Be sure to include a
section that includes a guarantee that all information provided by the
applicant is true and correct.
Once
you have an application from a customer, make sure you use it. Check all of
the information provided, phone numbers, bank accounts and any tax numbers.
For companies in the United States, you can verify the standing of
corporations with your Secretary of State. Get at least six trade credit
references and call all of them. You can also order credit reports on the
business and retail credit reports on its owners.
Once you have made a rigorous check of applicants, make it easy for them
to pay you. Ask if they need multiple invoices sent to multiple locations.
Paperwork delays that you create give your customer an excuse for slow
payment. Make it your policy to mail invoices immediately after shipping or
purchase. Each week divide the dollar amount invoiced by the dollar amount
sold on credit. Your target is a billed-to-sold-on-credit ratio of 100%.
When creating your credit policy, consider ordering new credit reports
at regular perhaps every six months or at the 1-year anniversary. Be sure
someone reviews large accounts weekly, looking for unusual changes in
payment or purchase history. Always remember that the slow-paying debtor
cannot pay everyone but usually can pay someone. Be sure you’re that
person s/he can pay. Get a promised date of payment. Write up the promise
and fax it to the customer for their signature and return to you. Repeat
this process every month until the customer starts paying you on time.
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