A Credit Policy Checklist

Who will be your credit manager, collector or in charge of the credit department?    Pick one person to be in charge of all credit applications and reports. Write that name down so you can talk to that person about this responsibility and the job and make sure they are willing to hold that responsibility.  Make sure everyone knows who this person is so they can go to them about anything credit related.

Get credit applications. Where to get them:  online, office supply stores, CD’s or books of business letters and forms, local printing companies.  Download free credit applications at http://www.MichelleDunn.com/free-from-michelle or if you have a copy of my Ultimate Credit & Collections Handbook, the check IS in the mail – you have a CD in the back of the book that has examples of different credit applications you can print out and use. If you want a copy of this book with the CD, visit my website store or amazon.com.

Get some collection letters ready.  Many businesses like “series” of letters, normally starting off with a friendly reminder and gradually getting stronger as payment is not forthcoming.  You can find letters online, on the CD in the back of my Ultimate Book or  in my book Debt Collection Letters and Forms, how to get your customers to pay or write your own.

Research and choose a collection agency.  You want to find an agency that you are comfortable with BEFORE you need it.  When choosing an agency make sure that they are fully acquainted with the nature of the goods or services that you provide.  If an agency is familiar with your industry, it will be better suited to handle complex situations that arise during collections.

Do not place accounts with more than one collection agency.  Make sure that if you decide to change collection agencies, the account is only be worked on by one service.  

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What is your credit risk?

As you write your policies you need to understand your credit riskCredit risk is the risk of loss due to a default on a contract, or the risk of loss due to someone not paying you as agreed.  If you don’t demand payment up front you are leaving yourself open to credit risk.

Your credit risk is the time in between when the customer leaves with your product or receives your service and when you get paid.

Some steps you can take and include in your policies to reduce your credit risk are:

Get a signed personal guarantee

Offer month-to-month credit

Offer ship-to-ship credit

Ask for a security deposit

Get a 50% (or more) deposit on every order

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The Credit Policy Mission Statement

Now that you have a clear picture of what you want this credit policy to do for you, take a look at your business mission statement.  You want to write a short concise mission statement for your credit procedures.  Every business has a mission statement and you want to apply that to your credit policy to write a mission statement for your cash flow.

Your credit procedures mission policy should state what the goals for these instructions are, what the goal of these procedures are, who is responsible for all the credit decisions and functions and then the actual policies or steps.  For example, your policies or what you want your credit procedures to accomplish might be:

Your payment terms and conditions

Processing new customers that want revolving credit accounts

Using credit applications to check credit worthiness

Joining a credit bureau in order to pull credit reports

Setting realistic credit limits

Dealing with any past due customers

When and how to use a collection agency

 

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How to write your Credit Policies

Now that you know why you need a credit policy you need to come up with one that will work for you and your business.  Some things to think about when sitting down to write out your credit policy steps are what you want your credit policies to do for you and your bottom line.  The purpose of your credit policy should be to accomplish any of the following objectives.

I want my credit policy to:

Provide timely notification to any of my past due customers automatically to help my business eliminate old balances left on the books.

Outline steps and procedures that will provide my customers with options when they find themselves unable to pay in full or on time.

To provide my employees the steps to take when an account has a small balance due (interest, shipping, disputed item) in some cases a company might implement a rule that they write off anything under $10.00.

To provide step by step instructions to my credit manager when checking credit and setting reasonable credit limits for customers approved for revolving credit accounts.

Give us strict guidelines to follow on how to legally collect money due to us as a result of returned checks.

Have an automated system that will send out reminders to past due customers every week or two weeks.

Include the proper legal forms so that my business can keep customer credit card or debit card numbers on file with permission to automatically charge them at the time of an order or a specified date each month.

To have specific steps in place so our credit manager knows at what point an account should be placed with a third party collection agency and written off to bad debt.

Have steps in place in the event a customer’s order is held due to a past due balance, I want this to include notification to the customer and an easy payment option.

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How Forecasting can help your bottom line

One thing you can do is make sure that forecasting is something you do for your business or ask your accountant to help you with this.  Look for growth in real wages, which drives consumer spending, and which accounts for more than 2/3 of the US economyConsumer spending is a huge indicator of what is happening and it also drives corporate profits which in turn affects the stock market.  Look for changes in the economy that will affect your business and remember every business is affected differently and at different times during the cycle of a recession, or down turn.

Keeping up to date on foreclosures happening in your area and the areas you may sell services or products to is crucial to your business.  You can make sure your business is protected by going over all of your accounts that you extend credit to, make sure they are in good standing and up to date on all invoices.   If you have signed credit applications and are authorized to pull credit reports and/or check with banks and vendors on someone’s payment history, now is the time to re-evaluate each customer’s credit and credit limits.  Look for things such as late or slower arriving payments, change or loss of a job, changes in incomes, change of address, and divorce.  Take immediate action if a customers’ mail is returned and/or if the phone is disconnected.  Many times when the economy suffers people lose their jobs, their relationships suffer, and they may move to cheaper housing or lose their vehicles.  All of these things are factors that lead to your bill not being paid and can sometimes end in bankruptcy.  The three steps you can take to help you in this situation are:

1.  Review your accounts receivables weekly or at least monthly

2.  Stay motivated by trying to collect as much past due money as possible

3.  Stay focused; don’t let customer excuses veer you off track

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Do you have a credit management plan?

As a credit manager or the owner of a business you should be able to answer the following questions or at least know how to find these answers if you want an effective credit management plan.

1.  How do debt and credit affect my business?

2.  Exactly what is my credit policy?

3.  What makes a successful credit policy?

4.  What is credit risk?

5.  How do I turn prospects into credit approved customers?

6.  How can I maximize my cash flow?

7.  How do I handle customer deductions?

8. How do I handle customer excuses for late payments?

9.  Why would I use a third party collection agency?

Your credit management plan should answer each of those questions; you and your employees should be able to flip through your credit policy to find out what steps to take in each of those instances.  Having a credit policy can help you create a plan that answers those questions and gives you a guideline and steps to take in each scenario, helping your cash flow smoothly and avoiding much bad debt and frustration.

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Top 3 things your Clients can do to Help their Credit

If you try to help your clients to have better credit polcies, you may want to share this blog post with them. Many of your clients and the debtors you are calling may be having credit problems because of the state of our economy. Here are three tips that can help them survive and help you collect more money.

If your not having trouble paying your bills now, you might in the coming months. As the economy sinks and the credit crisis continues, many businesses are closing and people are losing their jobs.

Are you one of the many that is worried about losing their home, or their car or their job? These things can be overwhelming but you can take care of the worry with some discipline.

Top 3 things you can do right now to feel better about your situation.

1. Start a budget, use a notebook and create a budget based on your income and your bills. Get a book at the library or look online for an example of a budget.

  1. Contact your creditors, tell them you lost your job, or whatever the case may be and you are having trouble making the payments. Ask to modify your payments, this is MUCH better than doing nothing and having the account turned over to a collection agency.
  1. Credit counseling might be for you. If you don’t know where to begin and really feel as though you need the help of a professional, seek credit counseling. Be skeptical of businesses that offer instant solutions to credit problems.

You are responsible for your debts. If you fall behind in paying your creditors you may be contacted by a debt collector.

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“Bad Paper” by Jake Halpern

Thank you to Jake Halpern for sending me a copy of his newest book, “Bad Paper” to read and review.  Having worked in the credit and debt collection industry for over 27 years, I looked forward to reading a book based upon someone else’s experience in the world of debt buying and collections. 

Everyone knows all the horror stories about bill collectors, debt buyers and credit and collections departments – even though folks may owe the moneythe collector – no matter who they may be – are portrayed as the “bad guy”.  Anyone who works in this industry knows this, is aware of this and finds ways to help dispel the negative perception and get the job done by following the law and behaving ethically.  Just like in any other industry – there will always be bad apples.

Jake Halpern dives into one man’s story and experience in this industry and probes into how he did it, his colleagues, employees and bottom line.  In all my years in this business, most try to hide anything shady they may do and so it was refreshing that Jake was able to find someone who would share their story without fear of repercussions so that we could all have a better grasp as to what can happen in some instances when debt is bought and sold.

Something to remember is that this is one man’s story – not the story of the majority – not all debt buyers and collectors break the law or try to swindle consumers.  Just like not every auto mechanic is trying to rip off someone who walks into their shop, though that is the reputation many have, just like in the debt collection industry.  A few bad apples don’t make the entire basket bad.

Jake writes a great story, it is very compelling and interesting to read, it almost reads like fiction but is so much more interesting because it is non-fiction.  Most consumers who have been in a debt collection situation may already be aware of how the collectors who collect on old paper or zombie debt work, especially after the financial crisis of 2008 when many banks were exposed.   This may just be an eye opener for people who have not experienced this, or who may have heard stories but didn’t have any concrete evidence to support that these types of things may really happen.

Kudos to Jake Halpern for gaining the trust of a collector/debt buyer who would share his story and then getting his story out there, I have spoken to many reporters and journalists who have been unsuccessful in this aspect of writing a story.  The more we can expose how much regulations and laws need to change, the more chance we have of making those changes happen.  Bill collectors continue to try and provide a service to businesses by helping them collect money that is owed to them and struggle to do this by following laws put into place in the 1970’s.  Let us hope that this book will prompt the debt buyers and collectors who break the law, treat consumers unfairly and look for any loophole in order to collect a debt to reconsider what they are doing and be held responsible for their actions.  Until that happens, this will never stop, just like in any other unregulated industry with outdated laws out there.

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Characteristics of Great Debt Collection Negotiators

New and Experienced bill collectors must hone their negotiating skills.

Everyone who is trying to collect money, even if the amount was agreed upon at the time of the sale, seems to be required to negotiate. Most bill collectors, especially new ones, are not as effective at negotiating as they could be. I do know some of the characteristics of a good negotiator and of a good bill collector and wanted to post the things that they have in common.

  • Understanding the negotiation process – highly effective bill collectors recognize that negotiations are a process. It requires an understanding of the billing, credit approval and payment processes.
  • Focusing on a Win-Win situation – Win-win means both parties feel like they have “won” during the collection process. Great bill collectors help their customers or debtors try to solve problems and look for opportunities to make that possible. They also know when to be firm and limit what they do in order to reach an agreement that is acceptable for both parties.
  • Patience – To many bill collectors try to go for the “quick fix” so they can get paid and move on to the next account. Great bill collectors know that patience is a virtue and that rushing the collection process often leads to not getting paid. Great bill collectors take time to gather information BEFORE contacting the debtor or customer, they think carefully about possible solutions and this is critical because major mistakes can be made when you rush, some of them involving breaking the law (FDCPA).
  • Confidence – Great bill collectors are confident when making a collection call or collecting in person, they aren’t arrogant, rude or cocky, they are CONFIDENT. To reach this level of confidence, you must believe in your ability to reach a win-win agreement with the debtor. This confidence is gained through experience, the more debt collections you do, the better you become at it.
  • Listening Skills – People will tell you just about everything you need to know if you ask the right questions or keep quiet long enough for them to continue speaking. The biggest mistake a bill collector can make is not listening, or bigger yet, interrupting a debtor when that might mean if they had just listened longer, they may receive key information that will assist them in their collection efforts.

Being a bill collector is a skill that takes time, effort and energy. To collect more money you need to work at it, invest the time learning the dynamics and science of negotiating and being firm.

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What you don’t know about your customers can bankrupt you

How well do you know your customers? I bet you think you know them pretty well.  If you don’t know enough about them you can end up with a pile of unpaid invoices and no idea how to recover the money they owe you or the time to do it.  Don’t let this happen to you.

Credit policies are a must for every business that extends credit. Every business that does not accept payment at the time of the sale must have a credit policy in place or they run the risk of losing money and sales with the end result being that they are working for free.  If this gets out of control, you can end up with many customers owing you money but no money coming in, causing your business to fail. Some steps you can take to make your credit policy easy, quick and painless are:

  1. Make it easy for the customer to get credit with you.  Have packets paper clipped together at the front desk; include the credit application, automatic payment permission forms and anything else you want filled out before opening an account.
  2. Make it quick, by having these packets ready and waiting for anyone who comes in.  Have pens and clip boards available so they can be filled out immediately.
  3. Make it painless, by either having them wait and running the credit application while they are still there or responding to them within a certain time period, say 24 hours.

Customers today, like everyone else are expecting convenience and speed, If you make opening up a credit account difficult or unorganized, you could lose the customer.

Customers that are approved for credit, will buy more if they can pay later, so make the process as streamlined as you can.

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