The Guide to Getting Paid

Weed Out Bad Paying Customers, Collect on Past Due Balances, and Avoid Bad Debt

Michelle Dunn

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118058480
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Give your business a successful credit and collections plan with this easy and clear guide

Over 100, 000 businesses have slow or non-paying customers. Yet very few actually have a workable plan for claiming the missing revenue that results. This book gives you a complete solution and tool set to ensure your business maximizes its collections while maintaining an effective, profitable credit plan.

You'll discover how to set up an efficient in-house credit policy that not only lets you collect more debts, but also boost sales, increase cash flow, and grow profits. Step-by-step credit management instructions show you how to weed out bad-paying customers, add more good-paying customers, collect on past-due balances, avoid bad debt, and limit credit risk.

• Contains all needed forms to set up and implement an effective credit policy
• Author is a popular columnist for several newspapers and national magazines, and appears regularly in the media as a go-to authority on debt

Get Paid enables you to decide what matters most to your business when it comes to billing, payment terms, pricing, cash flow, and more, then set up the systems to meet these goals and increase profitability.

1

What Is Credit Management?

If you own a business, you know that you occasionally have customers who owe you money—and that you sometimes struggle in your attempts to collect that money. You appropriately become frustrated with not getting paid after you complete a job. Perhaps you ship an order and then have to make collection calls, or maybe you just ignore the problem and hope the bill will eventually be paid.

Smart company owners learn how to collect the money that is owed them. They also know how to prevent accounts from becoming past-due, and how to keep their customers on track with less effort. That is what is called credit management.

Credit management is the process by which you control your business’s credit, accounts payable, and receivables. Correctly managing your business’s credit entails creating an outline of policies and procedures that will provide your customers with options when they cannot pay in full and on time. Effective credit policies provide an outline or plan that will enable you to adequately provide reasonable credit limits for customers who have revolving credit. This plan would also include procedures on how to deal with past-due or late-paying accounts, as well as advice on how to eliminate them from the books. You want to have guidelines to legally collect money owed to your company that has been lost due to late payers, nonpaying customers, and bad checks. You also want to establish a streamlined system that will maintain timely contact with all of your late-paying customers. These procedures help you to be aware of when accounts are becoming past-due and to help you avoid carrying bad debt on the receivables.

Business owners all have different types of companies in various industries, all of which can extend credit. Therefore, it should make sense that no two credit policies will be the same. One major difference is that which exists between a service or retail business. Your credit policy should use multiple facets to cater to prospective customers but also protect you and your organization.

You are limited in what you can and cannot ask a prospective customer in order to extend them credit. You need to be aware of what these questions and the associated laws are before you create your credit policy, which will help to filter customers so you don’t have to spend your time chasing your money. The best credit policy is short, easy to understand, and to the point; it should avoid long-winded statements with a lot of legal terminology or big words. Always create your policy and forms with the customer in mind—the easier and the clearer, the better.

OBJECTIVES OF CREDIT MANAGEMENT

If you don’t have a credit policy for your business, everyone will want to buy from you, which can result in unpaid and past-due invoices on your books. In order to be effective, your credit policy must meet the following objectives:

• Effectively outlines policies and procedures that will help provide your customers with options when they cannot pay in full.
• Implements a plan that will enable your business to adequately provide reasonable credit limits for your customers that have revolving credit accounts.
• Outlines the steps to take to collect from past-due or late-paying customers and how to eliminate bad debt.
• Provides guidelines to legally collect money that is due to your company from slow or nonpaying customers and from bad checks.
• Exacts a streamlined system to deal with any past-due accounts.

Once you’ve established your credit management policies or procedures, you will know how to maintain your cash flow to benefit you and your business—and how to get customers to pay easily and quickly. The longer you wait to take action on getting paid, the lesser your chances are of receiving any money. A credit management plan maintains your customers’ satisfaction and insures reliable payment of accounts, and the credit policy sets a positive credit tone for your business. It also lets potential customers know that you are serious about your business, and lets you control your customers, cash flow, and profits.

It is up to you how tightly you wish to enforce your policy. You can have a very strict credit policy—which alienates some customers—or a looser policy if you are willing to take a bigger risk. Some business owners have more flexible credit policies for a variety of reasons. They may want to open several new accounts quickly, they might be a large market or a competitive industry, or they may offer less discriminating credit terms for a limited time to introduce a new service or product. Or they may simply have a large inventory in a warehouse and want to move it quickly.

Whatever your level of stringency, any successful in-house policy must:

• Be tough yet flexible
• Have specific action guidelines
• Be enforced consistently

Proper and regular attention involves developing a collection procedure or policy and following each step fully before moving on to the next step. It means that you never move backward or repeat a step in the hope of salvaging an account. You need to be firm with policy enforcement and attentive to your policy’s details.

Good credit management is crucial to your business. If you can’t manage the cash and credit that flows through your company, it will inevitably fail. You must respect your cash and deal with it properly in order to be successful.

Some business owners feel that it’s easier to process orders just by obtaining limited information on the customers. Many new entrepreneurs are so excited to make the sale that they don’t want to offend the customer by asking them to fill out a credit application. Their next mistake in this situation is not asking for the money when it is due. They were so thrilled to make the sale that they’re afraid to anger the customer by asking for the money—even when it is past-due. They don’t realize that this means that they actually failed to make the sale in the first place.

Take a different approach here by showing potential customers that you are proud of what you do and serious about your business by asking them to fill out a credit application. Any customer who takes offense to this or refuses to fill out the application is probably not creditworthy—and is one you wouldn’t want as a customer anyway.

Most business owners don’t realize that a credit policy is a method to control their bottom line, sales, and income. Using this tool to increase your sales and profits is a smart maneuver that many companies unfortunately ignore. A credit application a potential customer fills out provides near-perfect information about them and how they pay their bills. It also helps you decide if the customer can afford more credit.

Be warned that when you utter the word “credit,” the first thing that comes to most people’s minds is “bad.” Credit has a variety of different meanings. This book focuses on both your company’s and your customers’ credit—a combination of which can sometimes result in debt. In fact, over 70 percent of American consumers that use credit cards have no idea what interest rates they are paying; that’s a pretty scary fact!

Most people’s credit problems are unexpected. People generally do not buy items on credit with the intention of not paying and just running off into the sunset (okay, maybe a few do). However, some of the most common causes of credit problems are:

• Unexpected medical bills
• Lack of savings
• No experience dealing with money or a budget
• Unemployment
• Overextending oneself financially
• Accidents or emergencies
• Separation and divorce
• Death of a spouse or other family member

Developing an understanding of the most common causes of credit problems will help you be more effective in trying to collect money that is due to you.

People use credit for many different things that range from quieting children to keeping up with the neighbors. Many consumers believe that the more credit you have, the more successful you are. For example, the platinum card makes us feel special, or a gold card means we are better or more successful than our neighbor who only has a silver card. A lot of people don’t want to be limited by living within their means. They want more, and they want it now—and they are bringing their children up the same way. Someone who uses a credit card to fulfill that dream when they can barely make ends meet is essentially making a deal with the devil. However, you can help control this problem by assisting your customers in making the right choices. You can do this by limiting their credit to what they can afford, thereby benefiting both your customers and your business.

HOW CREDIT MANAGEMENT AFFECTS YOUR CUSTOMERS

Your credit management plan is a two-way street; you create the rules and your customers have to play by them if they want to do business with you. If your customers don’t follow your rules, they are out of the game. It is your job to be fair, reasonable, and follow the law to ensure your customers will not be intimidated by your credit policy and will continue to be good paying customers who refer you to others.

Some customers with a history of bad credit look to buy specifically from companies where they don’t have to fill out a credit application or any type of new account forms. Any customer who balks at filling out any new account information should be established as Cash on Delivery (COD) or prepayment only. Never extend credit without getting at least a signed credit application and checking references. A quality customer will not run away when they have to fill out any paperwork, and will be glad to see that they are dealing with an organized, professional business. They will feel more secure doing business with you and will appreciate how serious you are about keeping your company profitable. This elevates your organization in the customers’ eyes; they will know you are an upstanding business owner with values and will want to continue to interact with you.

Extensive research found that consumers who can obtain credit will even pay more for a product or service when they are extended credit and have great customer service. Faster, easier, and smoother procedures will garner the most sales and better paying customers. The result is more transactions, more income, and happier customers. It can also prompt free and valuable word-of-mouth advertising from satisfied customers.

Knowing the types of customers you have can also help you to limit your credit risk. Your customer base can be compiled by many different types of people with different needs depending on the type of business you have. However, you should be aware of the following individuals, as they will almost surely put you at risk:

• Slow payers who are forgetful or unorganized.
• Those who “want to pay but can’t” due to economic circumstances.
• Those who are able to pay but unwilling due to a dispute or complaint.
• Credit criminals: people who commonly apply for credit, then don’t pay or find a reason not to pay.

Make sure the credit applications you give new customers are simple and to the point. Jamming too much stuff onto applications and forms scares away potential customers—especially if they can go somewhere else, fill out one easy form, and get the product or service they’re seeking right away. Customers are distracted by long forms, especially those full of legal jargon, long technical terms, or that ask for too much information. Keep the forms short and the language easy to understand.

Customers, creditors, and business owners can assess your business’s credibility based solely on your policies. If you extend credit without making sure the proper application is fill...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Foreword
• Preface
• 1: What Is Credit Management?
• 2: How Credit Affects Businesses
• 3: Effective Payment Arrangements
• 4: Handling Customer Deductions
• 5: Debt Collection Calls
• 6: Using E-Mail in Collections
• 7: Using Social Media in Collections
• 8: Third Party Collection Services
• 9: Debt Collection Laws, Rules, and Regulations
• Conclusion
• About the Author
• Index