¨ Hindsight is 20/20 -Understand your customers before you extend credit. Have your customer complete a credit application that includes trade & bank references (and check them!), D&B rating, financial statements and contact details of the A/P clerk and the Accounting Manager.
¨ Dodge the Bullet - Only extend as much credit as is necessary and warranted. If credit references come back less than stellar be willing to work with your customer, but don’t feel that you have to compromise your business. If the references are weak, they know it already. You may prefer to offer options such as COD, shipment of next with payment of last, ½ COD and ½ Net 30, etc. Be creative and willing to work with your customer toward standard terms in the future once a relationship is established.
¨ Cover Your Tracks-Make sure your customer understands your expectations. Upon extending credit send a letter to the Accounting Manager detailing the limit set and terms extended. The letter should be addressed to someone in a decision making position and have an upbeat and welcoming tone but at the same time it should make clear the terms and the fact that the account will be reviewed regularly and repeated late payments may alter the current arraignment.
¨ Don’t Sit Around Collecting Dust-Stay on top of you’re A/R Aging. How often you need to review your aging will depend upon the volume of customers and your credit terms, but (at least) once per week is a good rule of thumb. The more often you review the aging the more familiar you will become with you customer’s and their habits, and the more easily you’ll spot problems before they get out of hand.
¨ Don’t Put Off Until Tomorrow What You Can Do Today-Once an invoice’s due date has passed, it’s fair game for you to call and inquire about the payment status. After all, you shipped their product or provided your service when you promised; you should expect your payment when they promised.
¨ You’ll Catch More Flies With Honey -Always treat your customers with respect. An invoice may remain unpaid for any number of reasons, a disputed charge, a lost invoice, an overworked a/p clerk, as well as the customer’s cash flow problems or slow payment policies. Often times the A/P clerk has the power to put your payment at the top of the list-if she wants to, that is.
¨ Tend Your Garden - If your customer asks for a copy of an invoice, send it right away. If they are waiting for approval from their buyer, contact the buyer and find out if there is a problem. If they tell you the check is in the mail, take note of the check number and date mailed and request a replacement if it’s not received in a couple of days. Always follow-up.
¨ Stick To Your Guns- The payment terms have already been agreed upon, they should have been be confirmed in the PO and restated in your credit acceptance letter sent to the Accounting Manager in point #3. Be firm but polite regarding your payment expectations. Insist upon specific details regarding your payment, and again, follow-up.
¨ Go Over His Head- Only as a last resort should you go over the head of the A/P Clerk. The Clerk will continue to be an important ally in the future, but when his hands are tied you have no choice but to take it to a higher level.
§ A Little Thank You Goes A Long Way- The foundation of a successful business is built on its relationships with its customers. Consider calling once you receive the payment just to say thank you and show your appreciation for their help resolving the matter. The call may be unexpected and it will certainly be appreciated. I guarantee the next time you have a problem the matter will be resolved much more quickly.