credit and collections

Corporate credit managers have an old saying to the effect that it's not really a sale until you put the money in the bank. There is some truth in that. Lots of things can happen to that shipment while the receivable is still outstanding. The customer can refuse to pay for a variety of reasons -- say, a dispute over the quality of your craft widgets or the specific patterns ordered. Or maybe there's no money to pay you with, after taking that buying trip to Tahiti. A death in the family, or a check that's truly in the mail, but lost. The list is endless. Suffice it to say that all businesses need a good handle on their policies and procedures here. What good does it do you to ask for COD on the initial order, and then ship reorders on open account? That doesn't tell you anything. What will give you a good feel for this customer's payment habits is to ask for several references from other makers in the crafts industry -- and then actually take the time to check out those references. Or invest in a membership in a credit reporting service, such as the Manufacturers' Credit Cooperative.

Okay, you've qualified the customer's credit and sent the first order out on Net 30 terms. It's now Day 31, and you haven't received your money. What do you do? First of all, don't panic. Expect a Net 30 account to end up being outstanding for nearly 45 days. Your customer probably starts counting from the time the package is received, and doesn't cut you a check until Day 30, so that there's even more time involved for the post office to schlep it back to you. On Day 31 send a generic statement of account. On Day 45 make a polite phone call to find out if there is a problem. If the check is in the mail, ask for the date and the check number. Wait a week, and then send a written past due notice. By Day 60 you should have a serious talk with your customer -- no shouting unless you don't expect to ever do business with this account again. Everyone gets into financial binds at one time or another, so as long as there is dialogue and performance, try to preserve the relationship. Only when all else fails should the account be turned over for collection.


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