Establishing Your Credit & Collections Policy

A credit and collections policy is a document for your business and your clients. Whenever you aren’t paid immediately for the product or service you just provided; you have just extended your client a line of credit even if this was not your intentions.  Let’s look at the other side your client does pay you immediately but the check was no good, the clients bank account was closed or perhaps the client was not happy with the product or service you provided or maybe the client is a slow or sporadic payer.

A credit and collections policy addresses all the issues above and much more.  Here is the bottom line you went into business to make money, be in control of your destiny well I hate to break the news to you without your own established policy it’s easy to let your client’s control you based on what their needs are.  There is an old business school joke that says “You Set the Price, I will set the Terms” and your clients literally did and do.

Some Consideration in Setting Your Policy

Let’s take the guess work right out of it and get started in setting up your policy by asking yourself the following questions:

1. How do I want to receive payment cash up front, Cash On Delivery (C.O.D) or extend credit
2. When I establish a new customer what processes do I have in place I.e.…credit application, detailed explanation of services to be provided
3. Establish a survey that ask question such as: were you satisfied with the product or service provided...(Optional) however this limits the possibility of any disputes and addresses any issues or concerns the clients may have.
4. Will I accept deposits for work performed or shipment of products?
5. What contract forms do I need and what type of language do I need in my contracts.
6. Debt Management Recovery Plan (what action will you take to recover outstanding receivables)Recovery Action by (This is where you are to select an agency for collections activity) Debts in excess of $______ (example $1,000.00) will be referred out for collection Delegation of Authority (Whom will have authority to place accounts for collections) This is Typically the responsibility of the CEO, President, CFO When account is unsuccessfully recovered (Forward flow to Legal Counsel for litigation)

Any number of credit and collections policies will do the trick; well I should not say that, the policy should be industry specific.  The main idea is to establish your credit and collections policies before you open your doors for business.  I know that could be difficult but it will eliminate spur of the moment decisions and will allow you to think clearly when you begin to discuss your policies with your clients and staff.   

An informed client is a happy client. The issues that I see when it comes to your credit and collections policies are enforcing them, this is not a document that should be taken lightly and your clients should be aware that you do enforce your credit and collections policies.   

After your policies are established it is important to sit down with your executive team and review this policy with them.  Especially your sales force since they are the ones that will be selling your product or service.  As a start-up it is ok to not have such a rigorous financial policy we don’t want to scare customers or clients away.  On the other hand it may be in your best interest to eliminate the business that has issues with signing contracts with you or make firm commitments