Click links below for full detail.
Credit Department Mission Statement
Credit Department Goals
Organizational Roles and Responsibilities
Terms of Sale
Reporting to Management
-NACM Graduate School for Credit and Financial Management Class of 2013
-NACM Graduate School for Credit and Financial Management Class of 2014
-Credit Management Principles & Practices, by Dr. Charles L. Gahala, CCE, CICP
-Business Credit Magazine
-NACM Affiliate "News You Can Use"
-Bob Scheufler, CCE, Manager-Business Development, for D&B Risk
-Creating the Perfect Credit Policy, an online webinar presented by Shane Norman, CCE, Cashman Equipment
-Principles of Business Credit, Fifth Edition, an NACM Publication
This section of the credit policy should identify what methods credit personnel will use to collect receivables, particularly past due accounts. The best collection process is one which is proactive and consistent, and which reflects the mission and goals of the credit department. The collection procedure should be prioritized according to both the customer's risk and exposure level.
This should include:
Points to Consider:
- When to contact a customer
- How to contact a customer
- When to place an account on credit hold
- How to resolve disputes, deductions, etc.
- When to turn over delinquent accounts to an outside collection agency or attorney
- When to write an account off to bad debt
- Authorizing settlements
- Has the company established a clearly defined process for collecting past due accounts, beginning when an account first becomes delinquent and continuing until the debt is collected or when the collection cost exceeds the benefit?
- Does the company use multiple collection strategies (telephone, email, fax, letter)?
- Does the credit policy contain a statement that reinforces ethical behavior and credit professionalism when communicating with customers and salespeople?
- Is there a policy for when to place an account on credit hold and does it have the buy-in of sales?
- Are customers, customer service, shipping, and salespeople notified immediately, as applicable, of a potential credit hold situation before the hold actually goes into effect?
PRINCIPLES OF COLLECTION: SMALL/MEDIUM-SIZED COMPANY
(50-100 STAFF MEMBERS)
Small companies often do not have the abundant source of capital or funding that large public companies do and, as such, the risks associated with slow paying customers can be especially detrimental. Therefore, small companies need to guard Accounts Receivable closely to optimize cash flow.
|Depending upon the size or particular organization of the company, the credit and collection function is assigned to one of the following staff members:
- Credit manager
- Accounting manager
- Accounts receivable manager
- Accounts receivable staff credit
- Collections staff
These staff members will be working under the direction of the owner of the company, controller, director of finance, director of credit or CFO. Knowing a customer is even more critical to a small entity because staff and resources are limited, financial statements provided may come from non-accountants and a small firm could cease operations more quickly.
|Customer ratings can be categorized as follows:
- A or Prime: Almost always prompt, therefore may require less monitoring, but should depend upon company size and/or balance owed.
- B or Good: Usually prompt, collection can also be minimal.
- C or Limited: Requires regular monitoring of balance, credit line and any past dues.
- D or Marginal: Requires constant scrutiny, often high maintenance accounts, terms are limited .
- E or COD Only: No terms for whatever reason determined by credit.
|Consideration of macro collection issues such as tolerance for delinquency, sales goals, etc. include:
- Effective company policies and procedures
- Economic climate in general
- Industry trends
- Credit laws and practices
- Overall impact of the customer on the company's sales goals and objectives
With the basic objectives being:
- Performing revenue management to the advantage of the company
- Allowing for open two-way discussions
- Reiterating the need for ongoing terms compliance
- Maintaining the customer relationship and goodwill
- Collecting the money for the outstanding debt
Points to Consider:
The following is a sample suggested collection process for small to medium-sized companies.
|>> 1-3 (or so) Days Past Due: Initial delinquent
||>> 45-54 Days Past Due
- An initial, aggressive follow-up can often uncover customer disputes or invoicing errors before aging continues
- If payment information is obtained, details are recorded by invoice for retention
- If payment information is not available, request when payment will be processed or the reason payment is delayed (i.e., incorrect terms, credit balance, POD needed, copy of invoice needed, etc.)
- Orders for large prime customers would not be put on credit hold and account would not be placed for collection at this point
- Consult with customer service and/or the sales team to determine next internal steps in resolving past due situation as needed
- Escalate to credit manager or controller
- Maintain credit hold status (continue communications with sales as well)
- Email/fax second formal notification
- Follow up with customer calls
- Agree on new payment commitment (i.e., post-dated check, weekly payment)
- Follow up and ensure payment as promised on an agreed date (i.e., ask "May I call you on Thursday to confirm?")
|>> 3-14 Days Past Due
||>> 55-60 Days Past Due: Seriously Delinquent
- Courtesy call/fax to confirm receipt of invoice and product
- Identify existing discrepancies or disputes if any
- Resolve existing discrepancies ASAP
- Escalate to sales and/or management
- Get sales involved, ask for assistance
- Follow up daily or every other day as necessary
- Try to resolve issues, if any
- Send another written "collection letter" regarding seriously delinquent status by email or mail; consider demanding certified/overnight mailing
- Email and fax the customer (owner, president, controller) requiring full and final payment be received within 10 business days either by certified funds or wire transfer, sending a copy of correspondence to internal sales management
- Contact customer to confirm that the final demand letter was received
|>> 15-30 Days Past Due
||>> 61-89 Days Past Due
- Send customer statement or aging report via email
- Follow up with a call to confirm receipt of statement and invoices
- Follow up on discrepancies or disputes if still not resolved
- Secure payment commitment
- Follow up and call to ensure payment by promise date with warning of impending credit hold
- If late payment is a new trend, advise the customer that prompt payment is expected or any future delinquent payments could result in delayed or restricted shipments
- Recommend to customer that sending payment via overnight mail, ACH or wire transfer may assist in expediting new shipments
- Request specific payment details
- Make recommendations and discuss recourse with sales and/or management
- Call customer with warning of demanding payment
- Send formal letter (a 5- or 10-day demand) and copy the guarantor, if any
- Notify sales and management regarding final demand for payment
- Prepare customer file for collections including:
- Notes of discussions with the customer
- All correspondence sent to the customer regarding invoices in question
- Copies of proof of deliveries on invoices in question
- Original credit file: The signed credit application, personal guaranty, UCC filing, etc.
|>> 30-44 Days Past Due
||>> 90+ Days Past Due: Final Demand
- Consider a credit hold
- Fax or email formal credit hold notification to customer (30 days past due)
- Notify sales (sales manager, director, etc.) and customer service of account status
- Call customer and follow up on payment status
- Collection via email and phone call should be made every 3-5 days
- Make one last call to the customer with an urgent request for a same-day reply (for instance by 5:00 PM)
- If the customer agrees on a new payment commitment, make arrangements and send a follow-up email to include a "Payment Plan Agreement" contract
- Call guarantor if no satisfactory agreement is reached
- Turn over to third-party collections and/or attorney for litigation
- Prepare total for bad debt write-off
The decision to turn non-paying accounts over to
third-party collections will depend upon a number of factors:
Points to Consider When Selecting a
Professional Collection Agency:
- The individual company's tolerance and reserve for bad debt
- Preferences to how far an account must go before letting go of collection controls
- Determination of whether a significant enough amount is likely to ever be collected as a result of hiring a third-party collector
- Consult colleagues within your NACM network, including industry credit groups, for a recommendation of quality and successful professional collection agencies.
- Develop a request for information for each agency to complete to assist in the elimination process. The request is to educate yourself/your company and to obtain quality information from the potential provider.
- Consider the recovery rate on closed account claims diligently worked on for "x" period, and also the communication made during the stages of recovery.
- There should be transparency and the ability to connect with the collection agency for ease of account placement and reporting. Agencies should be able to provide access to their system and/or have the ability to customize reports for client needs. They should offer an open invitation for an onsite visit to observe their systems, their staff in action and provide a complete outline of their action plan for resolution.
- Feedback should be provided so that improvements can be made to claimant processes whereby claims can be established earlier and/or ensure thorough collection efforts are completed prior to placement.
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