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Credit policies need to be concrete, consistent and known by your sales staff as well as those handling receivables.

Strong Receivables Management
Contributes to a Stronger Bottom Line

While most experts agree that the top reason for business failure is undercapitalization, a strong secondary reason is the inability to collect receivables.

The longer a receivable is outstanding, the less likely you are to collect. To ensure that you are able to collect on a high percentage of receivables, and keep the cash flowing into your business, you need to actively manage receivables.

Have credit policies and procedures

The first step in improving receivables collection is to establish policies and procedures.

Credit policies need to be concrete, consistent and known by your sales staff as well as those handling receivables. You don't want the salesperson to tell the customer one thing and then have the receivables staff trying to enforce a different set of rules. You also don't want to give different terms to customers who are essentially the same risk. You may, however, want to distinguish among your customers as to the level of risk they present and give terms accordingly.

Procedures should include taking a credit application from a potential client and carefully verifying all information.

Also, review a credit report on the potential customer. Contact a local credit bureau or one of the national companies such as Dun & Bradstreet or Experian. It may cost up to $100, but for a large transaction or a continuing relationship, that's a good investment.

Furthermore, you should establish your company's credit terms. How long will you give customers to pay? How will you determine each customer's maximum allowable credit? Salespeople should discuss terms with customers so there is no confusion. If terms change for an individual customer or for all customers, make sure they know about it. Good relationships can sour quickly if you spring surprises on customers.

Monitor those accounts!

It doesn't do any good to have policies if you aren't attentive to whether customers pay as agreed. Establish a system to track your receivables and to ensure that all remittances are properly and promptly credited. You can use something as simple as a tickler file, or you can use accounting software available for this purpose.

Many experts advise calling immediately when a payment becomes overdue. That means on day 31, if terms are 30 days, or day 61 if terms are 60 days. This first call should be a friendly reminder, letting the customer know you haven't received payment.

Call again if payment isn't received according to the phone conversation. This time you might want to speak to the next person up the ladder. Eventually you may have to think about whether you will ship any more product to this customer on credit or what other action you might take. This is where your written policies will be important. They will guide your actions and provide shelter from accusations that you are acting unfairly.

You may want to accept credit card payments from slow-paying customers.

Improving your receivables management process can pay big dividends. Never forget that every day you cut off your collection period will add to your bottom line.

Cole Taylor Bank's lockbox services can help you control and accelerate the collection of receivables by reducing mail and processing time. We offer both paper receivables services, for checks and money orders, and electronic receivables, for ACH and wire transfers. We also offer information reporting services to help you keep track of receivables.

Click here to learn more about how Cole Taylor can help you speed up your collections processing. Call us at (312) 442-5070 to hear about our full suite of Cash Management solutions and to receive a testimonial from one of our satisfied customers.