Should Your Business Have a Credit Policy?


Sep 13, 2014

Poor cash flow can kill a business of any size. In the current economic climate it is becoming increasingly common for customers to pay late – even ones who usually have a good payment history. Customers who were already slow at paying are starting to pay later and later, and in some cases are defaulting on their bills. It is important to implement a payment policy to get these customers in check, so that you can stay in business.If you already have a payment policy, send out a reminder to your customers so that they know what it is, and warn them that you are going to start enforcing it. If you do not have a policy work with your legal and accounts team to compile one that clearly and concisely lays out your payment terms and your collection policies.

What to Include in Your Payments Policy

Your payment policy should lay out when you will invoice people and how quickly you expect them to pay. It should also lay out your penalty charges for late payment, and what you will do to enforce your terms of payment. If you offer a service, your terms should clearly explain when you will cut off that service in the event of non-payment, and what a customer would need to do to reinstate service.

Enforcing Your Policy

Take a look at your accounts, and check who owes you money and how much they owe. Make a point of chasing the accounts that are past due. Instate a policy that will prevent new customers from opening up a line of credit before you credit check them. If a prospective customer has a poor credit history then you should ask them to put down a deposit before you sell anything to them.

Once all customers have been notified of your payments policy, start to enforce it consistently. Send a friendly reminder when a payment becomes past due, and follow a consistent schedule, send a second reminder, then a notification that you will pass the account to a formal collections team. Do not be embarrassed about using the full extent of the law to enforce collections. You are running a business and any respectable client will appreciate that. If a customer is not willing to pay what they owe, then they are not someone that you want to be dealing with in the long term.

Outsourcing Collections

Depending on the number of customers you have, it may be worthwhile outsourcing your collections work. Keep track of how much time and energy you have to devote to chasing late or non-payers, and think about how much money you could make in that time compared to how much outsourcing your billing and collections work would cost. Some industries have bigger problems with late payment than others, so you will have to make your own decisions about whether outsourcing is worthwhile, but do remember that there are other benefits to using third party billing – for example you could find that you look more professional if you have a big-name payment processor.

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