by Susan Hunter, Georgia SBDC There's no getting around it: customers like credit. Even if they don't want to use it, they want to feel like it's there for the taking and, too often, for the taking advantage of! For the small business, there are many reasons to offer credit to customers: to provide customer service, gain sales, reach a broader base of customers, obtain customer loyalty, and to compete, to name just a few. There's no denying that credit holds an important place in business, and managed correctly, can create big profits. So how does a business develop a super credit and collections system? The first step is to establish a workable credit policy that screens customers carefully before granting credit. "The time to start worrying about being paid is the day before the sale," advises Ken Carter, Credit/Collections manager for Mansour's, Inc., a family-owned retail clothing store with five Georgia locations. According to a survey referenced in Effective Small Business Management, nearly 95 percent of small firms that sell on credit sell to anyone who wants to buy; most have no credit-checking procedure. A detailed credit application, designed to meet the company's specific needs, is the first line of defense. The next step involves establishing a firm written credit policy and letting every customer know in advance the company's credit terms. When will you invoice? How soon is payment due: immediately, 30 days, 60 days? Will a late charge be added? If so, how much? The credit policies should be as tight as possible and within federal and state credit laws. The third step in an effective credit policy is to send invoices promptly since customers rarely pay before they receive their bills. "You've got to bill it before you can bank it," says one local contractor. "It's an oversimplified concept, but the accounts receivable on my balance sheet will never turn into cash on their own!" And when an account becomes past due, the business owner must take immediateKeila Vald Cuarto de hotel barato action. The longer an account is overdue, the lower the probability is of collecting it. As soon as an account becomes past due, many business owners send a "second notice" letter requesting immediate payment. It that fails to produce results, the next step is a phone call. "When you get on the phone, ask for payment in full," advises John Roper, an attorney and former owner of PACO Collections in Columbus, Georgia, who claims that a personal phone call is "ten times more productive than a letter." If the customer still refuses to pay the bill after 30 days, collection experts recommend sending a letter from an attorney, turning the account over to a collection agency, or hiring a collection attorney. Although collection agencies and attorneys will take a portion of any accounts they collect, they are often worth the price paid. According to the American Collections Association, only five percent of accounts more than 90 days delinquent will be paid voluntarily. Establishing credit and collection policies is not a one-shot deal. Credit and collection policies should be reviewed and measured to determine their effect on profitability. Their profits, not costs, are the best measurement of a successful system. For example, if the collection action that generates the most money is the first collection phone call, the business should take that action sooner in the collection cycle. Sending a second copy of the invoice may cost less than a phone call, but the business owner should do what works, not what's cheap. While it is true that there is no perfect credit and collections system, there is a best system for each individual business. It may seem hard to beat "cash on the barrelhead" terms, but businesses shouldn't automatically shy away from offering their customers credit terms. With a carefully thought out and properly managed credit policy, companies can grow their business by capitalizing on credit sales. cheap hotel in ArendalTo obtain small business assistance contact a consultant at a Small Business DevelopmentCenter.
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