A successful business is built upon great relationships with clients, naturally. Delivering your goods and services to them on time and on budget, sometimes going that little bit extra for them. And in return, they pay you on time, and then order more from you. This is in a perfect world. But before all of this harmony, you need to set your ground rules of the relationship. A strong Credit Policy, driven by your business, applied by your staff, can set the foundation for a long-lasting and profitable relationship with all of your customers.
A Credit Policy is there to protect the business which supplies the goods. It covers how your business opens new accounts, what documentation needs to be completed by both parties, and what payment terms you will give new clients. It will discuss how those payment arrangements may change depending on customer’s loyalty. It also has instructions on when your business will put a credit hold on an account and how you will inform the customer that there is such a hold. This gives your business a very good foundation for when you begin calling debtors, asking for money. It gives you a strong paper trail of agreement. And you know what? If you have a good Credit Policy which your customers understand, it is rare indeed to have issues with late payments.
The Credit Policy ensures that everyone within your business understands what is permitted in relation to releasing goods and services to a client. With an updated database of clients, it won’t matter who on your team receives a call from a client, everyone will know what their situation is, what terms they have agreed to, if there is an issue, or a Credit Hold. The right hand will always know what the left hand is doing and you won’t get that awkward and costly situation where a client tells you, the owner- Team Member Katie agreed to this, so you must adhere to that agreement.
I have many tips to help you establish a good, strong, Credit Policy, far too many for just one article. Here are my first items for you.
New Account Applications:
- What are all the basic information and requirements for setting up a brand new customer?
- Who in your business must sign off on all new accounts?
- What do you give the customer once their new account is set up – letter, welcome pack?
Cash Sales Policy
- Do you have a cash sales policy or is it purely credit?
- If you do have a cash sales policy, is it cash up front or cash on delivery?
- Do you have a hybrid of this for larger orders?
- What are the standard payment terms for new clients?
- What are the special terms for good and bad clients?
- Do you offer discounts?
- Who do you offer discounts to? What are the conditions for discounts?
- How is the discount applied or paid?
Claims for Credit
- What are the terms and conditions for these claims to be made and accepted?
- Who signs off on these claims and has the ultimate say in their approval?
- Who processes these claims?
- Who monitors the current, and history, of claims for each customer?
- Under what conditions are credit holds applied?
- What communication do you have with your customer regarding credit holds
- What is the escalation pathway?
Customer Statements and Dunning Letters
- Do you have standard letters to send?
- At what point do you send a letter?
- How many letters do you send?
Confirmation and Collection Calls
- At what point do these begin?
- Are there nominated staff to make these calls?
- Do you have a script?
- How and where do you record data about these calls?
- How often do you make them?
- Who handles complaints from customers?
- Do you have an escalation path?
- What is your method for recording complaints, investigations and resolutions?
- At what point does it get escalated to Legal Action?
- What action do you take?
- Do you know who your legal representation is?
In the next article we will look at the administration and reporting side to a good credit policy. In the meantime, if any of those steps above sound complicated, or remind you of a time you had to do such a thing, and you weren’t’ confident, you can give BDM Credit a call on 1300 164 192.