If your business extends credit (or even considers it) you know how important it is to maintain a well-organized credit process. And if you don’t know it, you probably have trouble getting customers to pay you on time. If you are going to extend credit to customers (which, there are reasons many companies have to or choose to), you must create a concrete credit process from beginning to end. Here are the steps you should take to ensure you are structuring your credit process for success:
1. Get organized – If you want to have an effective credit process, you’ve got to be ready to make it a priority. Getting paid on time is no easy feat, but if you work on developing a system, you will automatically increase your collectability rate. Therefore, start today by taking the time to sit down and sketch out a process from beginning to end. How do you “approve a customer” to do business? How do you introduce them to your terms once approved? These are the places you start, before you even invoice a customer.
2. Put it in writing – The easiest way to let customers know you’re serious about your credit policy is to put it in writing and make it visible to all current customers and potential customers. Be vocal about who you extend credit to, what your net terms are, how you accept payments, if you have late fees or early payment rewards and whether or not you report late payments to the bureaus. Setting these things in stone helps resolve any “he-said, she-saids” with clients and motivates on-time payment.
3. Have a credit application – If your customer wants credit, they are going to have to apply for it. The reason you need a credit application is because:
4. Ask for the right information – It’s not just about having a credit application, but about having a credit application that gives you the information you can use. So, be sure to include the following fields on your application:
5. Put it to good use – It’s great that you collect this information, but it’s useless if you don’t use it to investigate. Use the EIN or SSN to pull a customer’s credit report. The top business credit bureaus are Dun & Bradstreet, Experian and Equifax. Take some time to call the business’ trade references. Always check on the landlord/mortgage holder references as these references tend to be less biased than those carefully chosen trade references. Bank references take a bit more paperwork and should only be looked at if the credit score and other references didn’t verify the client.
If you want to ensure you get paid, it’s about first verifying that your customers are in a position to handle this credit. Always vet your customers. Do the work upfront so you spend less time down the road chasing payments.