You should have a standard, in-house written policy on handling accounts. The policy should include when to call new customers, when to call established customers and when to send letters. It is up to you unless you hire a credit manager, to make sure the policy is followed and kept up to date. Your policy should change as you grow or add new products or services to your inventory, or if you just want to make more money by having a stricter policy and including discounts and other payment incentives.
Assuming that there is regular account billing, you will find that most credit users will pay as agreed. A certain number will pay after a mild reminder. Some will encounter a change in economic situation that makes it difficult to pay, such as illness or loss of job. After a regular follow-up with these consumers, they will usually give insight into their financial situation, their reason for nonpayment, a promise to pay and eventually they will fulfill this promise. A small number of consumers, rarely over 5%, will require more attention, but will eventually pay.
These consumers are not our main concern. They are mentioned only to emphasize a simple, fundamental collection practice - keep the account good. This can usually only be achieved by giving each account proper and constant attention.
A successful in-house policy must:
- be tough yet flexible
- have specific guidelines of action
- contain self-evaluation
- be consistently enforced
Proper and consistent attention involves developing a collection schedule and following each step fully before moving on to the next step. It means that you never move backward or repeat a step in the hope of salvaging an account.
As an account ages, the chances of collecting on it decrease dramatically. It's expensive to carry accounts that you will not be able to collect using the methods at your disposal. It's often a better use of your company's time and resources to concentrate on other aspects of your business.
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