Magazine article Business Credit

Proactive Collection Practices

Magazine article Business Credit

Proactive Collection Practices

Article excerpt

Has this ever happened to your company? A long-time customer, with whom you have done a ton of business, just missed a huge promised payment. He doesn't have the money and he doesn't know when he'll have it. What do you do? For any company, it is a potential loss that cuts right to the bottom line if you don't collect. For a smaller independent operation, it could mean financial ruin.

What can be done about the long time customer who missed his payment? When your collection person informs you the payment was missed, they should have a contingency plan for this situation. One such plan" could be as follows:

1. Assess all the information you have on this customer (i.e. his business and personal holdings, his business and personal lifestyle), does he do excellent work or just passable? Is he a working owner, or is he management only? Is he living within his means? With the cooperation of the inside and outside sales people, a good credit person is going to know who his or her customer is. It can't be overstated-knowing your customer is the best way to get paid before your competitors do.

2. Make sure all your invoices have a job name and/or purchase order number. Be as specific as space will allow. This serves two purposes: first, it helps you and your customer track every job and second, a job name on an invoice is the only way you can file a lien or make a claim on a payment bond (should it come to that). Remember, even if you personally deliver goods to a job and you know that the invoice is for that job, if it doesn't have the job name or purchase order number on it, you do not have a legal claim.

3. Make a decision as to how you will pursue collection. If you know your customer, you know what kind of debtor he is. Knowing what kind of debtor he is will largely determine whether you approach the situation with aggression or subtlety. Given that this customer has done business with you a long time and assuming that he wants to continue in business with you, the best tactic here is subtlety. Aggression has it's time and place, but in this case "helping" the customer will probably get better results, and when the customer gets "back on his feet," he will probably remember your company favorably before the competition.

How do you help the customer? First, tell him what happens if you don't solve the problem. Get him thinking like you are-that paying you is necessary to his survival. Secondly, demand total honesty concerning the circumstances that occurred leading up to the present crisis. …

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