small-business-marketing

There's no shortage of websites that offer tips on collecting delinquent accounts. Many of them offer good advice - and sooner or later, you'll probably need it.

But here's my top suggestion for dealing with slow payments or no-payment situations: Keep them from happening in the first place!

As I mentioned in a previous post, regular customer credit checks are the single best way to identify potential credit risks before they affect your own business. But there are other simple, cost-effective ways to manage your collections and credit risk. All of them should be part of your credit risk-management arsenal:

1. Craft a clear, detailed credit policy. Walk your customers through the policy, one step at a time. Detail exactly what you expect in terms of payment terms, penalties, and collection options. Educate your employees, including your sales team, about your credit policies so that they can explain them to new clients.

2. Take your invoices seriously. Believe it or not, the quality of your invoices can have a major impact on how customers perceive your credit policies. Create professional-looking invoices that provide clear, concise information on the amount due, payment terms, and other important information.

3. Follow up on your invoices before they come due. Some small businesses avoid this because they consider it heavy-handed. But treat these follow-ups for what they are: a chance to deliver quality customer service and to build a solid rapport with your customers.

4. Keep accurate payment history records. You can and should perform regular customer credit checks with reporting agencies such as Dun & Bradstreet. But you also need to maintain impeccable records of your customers' payment histories and to check them regularly for unusual payment trends.

5. Know when to pull back on credit. If you wait until a customer is delinquent to change or withdraw their credit terms, you've already lost the game. If their credit profile shows a sudden rash of late payments to other vendors, or evidence of cash flow problems, you need to consider taking a more conservative stance with your own credit policies.

I know what you're thinking: Some of these suggestions may seem a bit cold or even cruel. And there definitely are exceptions to every business rule - including those governing your business credit decisions.

Just remember that business credit relationships always involve business risk. Making the wrong credit decision could leave your company holding the bag - and that's not fair to you or your employees.