Credit Policy for businesses and how to extend credit and manage credit risk

Right now you should be trying to collect as much money as you can from any customers that owe you money, no matter how old that money is.

I want to share some tips that can help you to be more effective.

Get more than the P.O. box
To increase your chances of tracking down an individual or business, always ask for the customer's physical address, phone number and social security number. All of this information will be helpful in tracking down individuals even if they have closed their P.O. box or changed their address and phone number. 

Check Credit and get a signed Credit Application
Fend off collections problems from the start by running credit checks on new customers and by discussing your prices, service fees and payment requirements with new customers before you do their work.  Carefully check credit references of each new account and don't extend more credit than the firm or person can handle.

Explain transaction terms thoroughly
When extending credit, make sure that accounts know when you expect payment, and clearly detail any credits or penalties for early or late payment.

Follow up overdue accounts
Make sure to promptly send statements and reminders of payment due dates. Make phone calls if necessary.

Institute a series of overdue notices
You should schedule regular written and oral reminders before even considering a collection agency.

Set an absolute due date and stick to it
As a final step, set an absolute due date before the account is turned over to a collection agency. Do not extend this date, but do give the debtor warning of this final payment date. Once this date has passed with no payment place the account for collection. 

What NOT to Do:
Don't tell your friends at the monthly Chamber meeting that the customer is a deadbeat, and don't plaster online bulletin boards or mailing lists with notes telling the world that your customer is a bad credit risk. Don't hang copies of the bad checks around town or in your place of business. If you do things like that, you can get yourself sued. You can also get yourself into legal hot water by making threats, using harassing or abusive language, making collection calls at odd hours or too often, or by making false statements about what will happen if the debtor doesn't pay. Creditors need to be aware of the FDCPA.