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

Small business owners are looking for some practical advice about how to do debt collection in a recessionary economy.  As things get tighter, this is one of the ways they can improve their bottom line and in some cases, stay in business.

Smart business owners are aware that this can save them a lot of money as they watch the uncertainty in the economy grow stronger.  This is not just happening in the United States, Australia and other countries are aware of this and all have their eye on their accounts receivables.

Be sure to evaluate how your credit policy is working for you and your business, make sure you don’t get caught as the economy continues to slip, it is up to you to be aware and make sure you get paid for the work that you do.

There are two easy things you can do to strengthen your policy today. 

1. Make sure every account is up to date on payments, start working on them now if you haven’t been.

2. Make sure you have a signed credit application with up to date contact information on file for every customer.

The first item could take you some time depending on how many past due accounts you have.  If you don’t have that many you will get the best results by calling them, and call the customers that owe you the most money first then work your way down the list.

If you have to many to call and it would take you days, pick out the highest dollar amounts accounts and the oldest past due balances and just call those. Send collection letters to the rest, and include a self addressed envelope for the payment.

If you don’t have time to do any of those things, don’t worry, you can still do something! You can outsource this task to a debt collection agency who will do this for you and mail you a check each month less their commission on what is collected. If they don’t collect anything, you don’t pay anything.

The second item is a bit easier, you can just do a mailing to all customers and send them a new credit application, send a cover letter letting them know you are updating your files.  This way if you have an old one, you can make sure it is current and if you didn’t have one for a customer, now you will.  Be sure to check each customers credit limits and adjust any that you think may need to be adjusted, especially on accounts that have started to become past due.