Credit and Collections: 10 Best Practices

Credit extension and collection is a vital part of running a successful business. By extending credit, a company is inviting customers to do business with them. The risk of extending credit is that the customer will not pay the amount due. Regardless of whether internal or external collection efforts are used to enforce payment, adhering to these 10 best practices will increase your chances of collecting on an unpaid debt.

1. Have a Defined Credit Collection Policy One major cause of overdue receivables is that the business has not defined to its customers and staff when accounts are to be paid. Make sure that your company’s terms of payment are clearly stated in writing to each commercial customer. Those terms should include an explanation of late fees, how much they are and after what date they will be charged.

2. Invoice Promptly and Send Statements Regularly If you don’t have a systematic invoicing and billing system, get one. Many times clients don’t pay because they haven’t been billed or reminded to pay in a timely manner.

3. Use “Address Service Requested” One of the most difficult collection problems is tracking down a commercial customer who has “skipped.” The U.S. Postal Service can help. Any professional or business statements or correspondence should have the words “Address Service Requested” printed or stamped on the envelope. This way, if a statement or invoice is sent to a customer who has moved without informing you of their new address, the Post Office will return the envelope to you bearing a yellow sticker that gives the new address. If the customer has placed a “forwarding order” with the Post Office, the Post Office is required to forward the envelope to the customer.

4. Contact Overdue Accounts More Frequently There is no law that says you can only contact a commercial customer once a month. When it comes to collecting delinquent accounts, contact late payers every 10-14 days.

5. Make Sure Your Staff is Properly Trained Dealing with delinquent customers can be difficult for even experienced staff members. Give your collection staff customer service training, which will teach them to sell your commercial customers on the idea that you expect to be paid. They should be trained to not only bring the account current, but to maintain good will with customers.

6. Keep Accurate And Timely Payment Records When a new commercial customer is extended credit, it is important to maintain accurate and timely records on their payment history. If you see any deviation from past payment patterns, especially if payments become unusually slow, immediate follow-up is warranted. This gives you an early alert to impending payment problems.

7. Follow the Collection Laws in Your State In many states, businesses are governed by the same collection laws as are collection agencies. To be sure you are following legal collection practices, call your state’s department of finance and ask for guidelines.

8. Use a Third Party Sooner Statistics show that after 90 days, the effect of in-house collection efforts wears off 80%. If any of your commercial accounts have been delinquent for 60 to 90 days, employ a third party. A third party, such as a fixed flat fee collection service, can motivate a commercial customer to pay in ways you cannot, simply because the demand for payment is coming from someone other than you.

9. Admit And Correct Any Mistakes Sometimes your commercial customers do not pay because they feel your company has done something wrong. If the basis of the non-payment is a dispute over the quality of your product or service, come to a mutually agreeable settlement with the customer as soon as possible. You may be able to get at least some of the money they owe you.

10. Encourage Early Payments Customers are more likely to pay an invoice within the specified time period if they can receive a small discount for paying early.

Views: 637

Comment by Jason Lee Overbey on May 18, 2011 at 8:25pm

Brilliant points!


From the start we teach our clients how to pay us so #1 & #2 setup that instruction, if you will. I am always leery of collections articles that don't at least intimate this. So well done!


I'd also add to attempt to forsee what possible objections to payment might be. Slow business? The economy? Health? Life change? And be prepared to overcome these. And when legitimate reasons are offered be as reasonable as possible to make arrangements. But follow up and if the promise is broken address it right away!


Another best practice is stay educated: is a great resource for those dealing with accounts receivable, i.e. anyone in business.


Thanks, Tim.


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