- Companies who have no written Credit Policy
- Companies who have a vast tome of a credit policy, that no one reads or understands
- Companies who have a policy somewhere and aren’t really sure
- Companies with a clear written Credit Policy that is communicated and understood by all concerned and implemented intelligently.
Sometimes Companies contact me to ask if I have a written credit policy I can give them and even though it goes against my nature to say “No” – I do so every time. Now I can help them write their credit policy, it is not as simple as putting words down on a page.
It is like if you told me that having personal goals was important and asked me to write some goals down for you, I could do it but it probably wouldn’t do any good!
A Credit Policy is a statement by the company as to how they do business. When they are happy to give credit and when they are not. It sets out the customer journey from completing an application form, the required documentation and checks that needs to be carried out and by whom. The level of checking should depend on the amount of credit to be extended and what is a significant amount for the business in question. To a small business €5,000 could represent a significant amount of money, to an International Pharma Company €100k could be a small account.
It needs to cover how quickly the account should be open and what payment methods are accepted or expected.
It should also include an action plan to ensure timely collection and the steps that will be taken and when they will be taken, should the account not be paid in full on or before the due date. The collection plan should also specify the sales person’s involvement (if any) and at what stage the account will be put on hold for future supplies and when it will be passed to a third party Debt Collection Agency or Legal firm for collection. Then further outline the enforcement steps that will be taken and finally when amounts should be written off.
Way too often, I see accounts left sitting for far too long with little or no action taken. I see unresolved queries and disputes that go unresolved for weeks and sometimes months, so the policy should specify who is responsible for dealing with these and a reasonable time-frame for delivery.
Finally the policy should be agreed with all concerned and signed off by the Managing Director, to give clarity to everyone involved with the credit cycle, and the KPI’s for all concerned should include their performance on supporting the credit department to ensure happy customers.
So, the advice this week is to formalise your Credit Policy – put it in writing. You can do it yourself following the guidelines above or get me to help you (at a reasonable cost), either way it is an essential ingredient for every successful 21st Century business and with the benefit of my involvement, you can rest assured that your final document will be properly enforceable and enforced.
Getting paid is too serious a matter to leave it to chance..