This informative and helpful article by Matchmaker VP Bob Skane was recently featured in the Logistics Journal!
An effective credit policy is essential to success in today’s business environment. A consistent policy will help:
– Reduce the number of “slow pay” and “no pay” accounts
– Reduce collection costs
– Create selling opportunities (yes, selling opportunities)
The first step is to determine the mission for your credit department. At Matchmaker, our credit department’s mission has two parts:
1) To work closely with management and sales personnel to assist in determining the relative credit-worthiness of potential and current accounts.
2) To monitor and collect accounts receivable to achieve cash flow goals thereby assisting Matchmaker in achieving its overall corporate goals.
We begin our credit process by asking the customer to fill out and sign a credit application. More than just trade references, this gives us written authority to check their credit (often required by banks and some references) and gain written agreement to our terms.
Our next step is to run a credit report from an established credit bureau. Create a method for analyzing these reports rather than just looking at the overall risk rating.
How many trade references are reporting?
We discount the importance of the report if there are less than 5.
What is the control date (length of time under current management)?
A company may have been in business for 20 years but if they are under new management we take a much closer look at recent activity.
Are any suppliers reporting cash-only terms?
We take the different criteria and enter the information into a spreadsheet. Each item is assessed a weight, based on its relative significance. The figures are added to determine an overall credit score. This score will allow us to determine:
1) If we want to extend credit and how much.
2) If we need additional information or security (financial statements, personal guarantee, UCC filing etc…).
Once we have approved a company for credit, our department manager sends a welcome letter that
1) Highlights our commitment to customer service.
2) Informs them of some of our past accomplishments.
3) Reiterates our pay terms.
4) Provides them our A/R and sales contacts in case they have a question or problem.
We make phone contact with the customer’s A/P department to verify that we are billing to the proper address and gain as much information as possible about their processes and preferences.
“Early is easy.” That’s our mantra when it comes to collections. We make a friendly collection call to new accounts well before the actual due date. We view this as a sales call.
Were you happy with our service?
Was our invoice clear and accurate?
Was the supporting documentation appropriate?
We attempt to build rapport and find out more about their system.
What day do you cut checks?
Are we scheduled for payment? When?
How do you prefer to communicate if we have question?
Phone? E-mail? Fax?
Can we bill without a POD?
Would you like to pay by Electronic Funds Transfer (EFT)?
Some companies may be offended by this kind of attention. These are usually the folks who have something to hide. We do not want their business.
Reputable organizations are impressed with our professionalism and ability to adjust to their needs. Credit personnel are most effective when they view themselves as an important link in the customer service process.
It is critical to conduct periodic credit reviews for current accounts. We track their average days pay in a spreadsheet and look for any trends. If you are not paying attention, a formerly excellent customer may become your worst nightmare.
In summation, a thorough systematized credit policy is not a drag on company growth; it is a prerequisite for growth.
