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Getting your customers to pay on time

Good credit management not only means getting paid, it means getting paid on time. At all times, aim to get full payment for the goods or services you provide.

When collecting an overdue or 'delinquent' account, payment in full may go two ways. Either you receive full payment or the person owing you money may be able to pay in instalments.

Although you may choose to accept a payment plan put to you by a debtor, it's preferable that you not be the one to initiate such an arrangement.

Aim for three basic goals as a credit provider:

  • obtain payment in accordance with credit terms
  • maintain customer goodwill
  • keep credit losses to a minimum.

A workable policy for credit and collections is one that:

  • establishes written guidelines for granting credit
  • outlines a procedure to follow once delinquent debtors have been identified
  • provides guidance on what to do, when to do it and how to do it.

The 10 golden rules of effective collection:

  • Establish a sound credit policy and commit to it in writing.
  • Ensure your customers know your credit terms.
  • Carry out a methodical assessment of each credit risk.
  • Ensure that close liaison and cooperation are maintained between sales and credit personnel.
  • Monitor credit accounts regularly.
  • Take timely and decisive action in respect of delinquent accounts.
  • Implement the payment-in-full strategy at all times.
  • Be accurate in terms of information used in all communications with debtors.
  • Be persistent in follow-up action, until either payment is received or a conclusion is reached that nothing can be gained by proceeding further.
  • Avoid being a 'paper tiger' - making threats to debtors about possible future action that you are not prepared to take.

Avoiding bad debts

Always make thorough checks on your customers before granting credit and be alert for signs of deterioration in a customer's business.

Warning signs include:

  • failure to comply with credit terms previously agreed and adhered to
  • slow payment of accounts
  • round-sum payments
  • seeking more favourable credit terms
  • dishonoured cheques
  • making payments only when re-ordering
  • enquiries from other credit providers on creditworthiness
  • failure to return telephone calls or the telephone cut off
  • listings in mercantile agency publications in relation to judgement debts
  • frequent excuses such as:
    o the computer is down
    o the auditors are in
    o the cheque signatories are away
    o we are restructuring
    o we are changing bankers
  • disputes about invoices leading to short payments
  • post-dated cheques
  • any other adverse change in a customer's payment pattern
  • complaints by the client's customers about service standards
  • high management turnover
  • ordering goods and services from other suppliers at higher prices
  • unreasonable price cutting
  • slowness in sending out accounts

This content was first published on www.business.tas.gov.au

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