Most people know that how you manage your personal finances directly impacts your credit, but many don’t realize that proper management of your business financials is significant for protecting your company credit standing and ultimately a company’s growth and success. Just as a poor credit score can make it difficult for you to get a home or auto loan, it can influence the decision on a business loan or even the opportunity to lease office space. Maintaining a good credit score can be difficult for startups and small businesses that rely on payment for products or services. |
Fortunately, there are ways to protect your company’s credit. At the core of it all, companies need to focus on receiving payments on time and keeping a reasonable amount of cash on hand to cover expenses. Enlisting staff support and making them aware of how to handle billing and payment inquiries and proper collection procedures can have a direct and positive impact on the company’s credit scores.
Create and enforce business policies If you don’t have internal policies in place already, consider developing specific business practices that promote prompt and timely payments from your customers or vendors. Work with staff members and even key customers to eliminate issues in your organization that may adversely impact cash flow, including limiting the way your business takes payments.
When customers are consistently paying late or not paying altogether, consider automating the identification of delinquent accounts based on a formula of the customer’s credit rating, payment histories and buying patterns. This will allow you to manage the company's accounts receivable investment more effectively.
In difficult situations, credit lines and payments can be worked out collaboratively with the customer, to achieve the objectives of both parties. This may require creativity on the part of the credit manager, and use of security, documentary and other credit management tools. Credit policy should be a tool used to expand company revenues as well as the customer relationship.
Provide proper training Provide training across all departments that interact with clients or customers to ensure understanding of your company’s policies and objectives. Ensure all members of your organization provide a consistent message to the outside world, and anyone working in a customer service role knows how to answer questions about payment, deduction, dispute, or credit related problem. This can help eliminate payment delays by a customer waiting on call backs and emails from the accounts receivable department.
When to start collecting Use a credit and payment scoring model that triggers workflow actions. The scores should reflect credit risk, industry payment data, as well as your own experience with a customer to estimate a time for your company to begin collection action.
Be sure that collection performance goals are written down and that your staff are held accountable for their results. The goals should be in sync with those that drive senior levels of management, but focus on more targeted metrics to draw team concentration to what’s important.
Partnering with outside agencies Don’t shy from using collection outsourcing companies or agencies. While they will charge for their services, the alternative may be lower collection rates, higher borrowing and bad debt write offs. This prioritization must be by employee as well, as some are better suited for volume collections as opposed to complex collections.
If your business is experiencing an unacceptably high level of bad debt, perhaps your credit processes are inadequate to the task. Another possibility is credit insurance, although a credit insurer will also require that you implement effective credit controls and policies. If you have tried improving your business with the steps suggested above you may find it more beneficial to try turnkey solutions to including credit and collection outsourcing, or even factoring.
Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factoring financing for small to mid-size companies. For more information, visit www.fswfunding.com.
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