Credit Control
The Purpose of a Debt Collection Policy

The purpose of the Debt Collection policy is to document the processes and procedures that all staff must follow to ensure accounts receivable are collected in a timely, fair and cost effective manner. If these procedures are followed, there should be no accounts reflected as 'Receivable' for over 30 days overdue without valid, documented reasons.

Authority

Include a section that spells out the specific roles and responsibilities of the Owner and / or senior management team, and accounts receivable staff. And determine the point at which each is engaged to pursue the collection of an overdue account.

For example: current accounts up to 45 days is the responsibility of Accounts Receivable, 45 to 90 days the owner or senior manager takes over. Anything over 90 days goes immediately to a Debt collection agency.

However, if:

then you should not hesitate in firstly closing or suspending their account, secondly rating them as Cautious or Negative on Shark Patrols database and thirdly engaging a Debt Collection agency to act on your behalf.

They may claim they never received your invoice or shipment, tell you they don't agree with your payment terms and conditions, or use other excuses to avoid paying altogether.

 

Accountability

A Debt Collection Policy that all staff know and understand, should minimise overdue debt. Only when all staff (thats owners, managers, front counter, sales, delivery and stores) know and understand that a sale is not a sale until the money is in the bank, then this process can be applied throughout the sales cycle and entire lifetime of the customer.

If each member of staff understand the Credit Control / Debt Collection policy, including a payment timetable, no customer should ever get past 30 days.

Consider this. If you delivered an order 30, 60 or 90 days late, what would your customer have done?
Exactly, what customer! So why is it any different when the shoes on the other foot?

 

Establish a Credit Evaluation Process

Establishing a process for assessing credit risk and determining credit limits is critical to managing Accounts Receivable and avoiding bad debt. Don't rely solely on Shark Patrol's Shark Check and Shark Watch to make these decisions, for example your assessment process should include:

• Industry groups
• Credit references and Credit bureau reports such as Shark Patrol's Shark Check or Shark Patrols Media Watch
• Financial statements and year end reports - don't be afraid to ask for them
• Public records
• Other information obtained directly from the applicants

Don't confine your assessment to 'Known Problem Payers', after all many of these were probably once considered to be "Good". Set a time table to review and assess all of your customers, it doesn't mater how large your customer base is.

By establishing a credit evaluation process and applying it regularly you can monitor any changes in the risk level of your Accounts Receivables. If you have been in business, or the industry, for a while you should be able to recognise seasonal variances and therefore adjust your credit and collection policy accordingly.

This process should also include the parameters / rules for when it is necessary to review a customers credit limit based on changing levels of creditworthiness.

 

Terms of Trade

If you don't have a purpose written "Terms of Trade" you shouldn't be in business. A purpose written Terms of Trade should protect your rights, limit your liabilities and provide security in the transaction.

If your Terms of Trade are:

• More than 3 years old
• Not written specifically for your trading entity / activity IE borrowed from another business or internet
• Not written by a specialist Credit Lawyer, or
• Your business has fundamentally changed since last written / reviewed

Then your cash flow is at risk.

Click here if you would like Shark Patrol to write your Terms of Trade specifically designed to suit your unique needs

 

Time Table

Your Credit Control / Debt Collection policy should include a payment timetable. Each company, each industry has an established payment timetable. Be it cash on delivery, 7, 14 or 21 days, 20 th month following, whatever it is for your industry, establish a payment timetable that suits you and your customer base.

Use the following Payment Timetable as a guide.

Related content:

• Creating an Effective Credit / Debt Collection Policy
• Debt Collection Policy - Check List
• Increase cash flow with a Payment Timetable