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Credit Management: What You Need to Know

In order to be effective in managing your credit, you must know how to handle disputes. You should keep a close eye on potential disputes, and consider asking for partial payments from customers who regularly dispute invoices. When possible, give the department constructive feedback on the dispute so that it can be addressed before it escalates into a major problem. If the customer does not settle the account in full, it may be time to take a different approach. Below are some tips for avoiding disputes.

o Consider your customer’s financial situation. Whether you’re extending credit to a new customer or negotiating with an existing one, you need to consider the customer’s financial ability. At the same time, you need to safeguard your legal interests. A rigid policy could result in lost business and increased losses from defaults. The best way to manage your credit is to evaluate and monitor every account holistically. You’ll see more sales and profits with good credit policies.

o Consider outsourcing credit management. Most businesses take a reactive approach to managing their credit. The credit team reacts when a customer goes 90 days past due and starts complaining. This reactive approach only makes things worse. By contrast, proactive credit management is proactive and prevents problems before they occur. If you aren’t sure how to manage your credit, consider hiring a credit management consultant. A consultant can help you become more efficient and profitable by focusing on what your customers need.

o Monitor customer payments and payment history. The best credit management practice involves monitoring customer payment history to identify patterns in missed payments. Then, if necessary, follow up on late payments and complaints. This will help you avoid bad debts and free up your cash for strategic expansion. But it won’t solve the problem if your business has no credit management system. Ineffective processes are a recipe for disaster. And no business can afford to overlook any of these problems.

o Involve your staff in credit management. Make sure they are fully trained in credit management. There are several key steps to effectively manage your credit. These include risk assessment, negotiating terms, invoicing effectively, and debt collection. Each of these functions will be discussed in more detail in separate fact sheets. Understanding the risks and how to manage them effectively will help your business remain efficient. Effective credit management will ensure that you remain profitable and successful.

o Establish a policy for late payment. Defaulting customers can cause a business to go out of business. It is crucial for businesses to protect themselves from these types of losses. In the current market, one-fifth of all business bankruptcy cases are due to non-payment. This is an alarming number, and it is no surprise that businesses are struggling to make ends meet. Yet few businesses know how to protect themselves from insolvency. A sound credit management program will keep you profitable and increase cash flow.

o Research prospective customers. Do a background check on new customers. Look at various sources of information, such as the company’s 10K or local Chamber of Commerce. Even existing customers should undergo periodic reviews. Proactive research is critical to credit management. If your business has been dealing with the customer for some time, they may have a higher risk of default than you have. For this reason, it is essential to conduct periodic checks of the financial status of your current customers.

o Analyze your needs. Different people have different spending needs. A family with children, for example, will be spending more on basic consumption items, and a single person will be more able to handle more debt. Take the time to analyze your financial circumstances. In the long run, it will pay off in the end. It will also help you sleep better at night. You’ll be less stressed by the process of handling your credit.

o Avoid delays caused by administrative problems. Customers who experience repeated problems with your administrative system are likely to use this excuse as a way to avoid payment. However, a good system can capture information about your customers’ behavior and adjust credit accounts accordingly. Ultimately, the best credit management policy ensures that your customers pay you on time and without difficulty. So, the first step in implementing a credit management policy is to review your current policies.

o Know your customers. The next step is identifying those who are likely to be problem customers. Your credit management needs to reflect the risks to your business. Remember, if a customer pays their bills late, you might lose business. Fortunately, most businesses get institutional and bureaucratic when they deal with such sensitive subjects. And, when you’re dealing with marginal customers and projects, you’ll want to protect yourself. But don’t get caught up in this trap.