building off of last week’s post, I am sharing more of this article by Partner, Charles Sonneborn:
4. Have all customers, prior to being sold/serviced, complete a Credit Application that will be reviewed and approved by the person who has accountability for Receivables. This document could become invaluable if legal proceedings need to be taken and provides accuracy in initially establishing the customer’s name, address, etc. The document should also require a personal guarantee from the Customer’s owner. This form should be reviewed by an attorney prior to putting it in use. If your attorney advises it is ok to ask for the owner’s mother’s name, address and phone number as it can be very helpful in your collection activities if needed.
5. Subscribe to a credit reporting service (such as Dunn & Bradstreet) so you can obtain pertinent information about your customers prior to shipping/servicing. A copy of the report should be filed along with the Credit Application. Periodic updates to these reports should also be run and reviewed by the Credit Manager. The frequency of these reviews should be included in the Policy/Procedure Manual described above.
6. All accounting personnel responsible for billing must understand that every invoice needs to be generated and mailed in a timely fashion with the invoice date being the date product was sold or services delivered. It is also a good idea for the expected due date to be printed on the invoice so there are no misunderstandings by the Customer. A delay in the billing function gives the Customer an excuse to pay late. It will also produce an inaccurate Aging report, thereby providing erroneous information to the Credit Mgr and in many cases, the bank.
7. Print and mail a Statement to each Customer periodically. This will allow the Customer to see how much is owed and how many days outstanding the account is. It will also help to protect the integrity of your Receivables in that the Customer will contact you if they feel the balances are incorrect. This is an important function in developing internal controls for your business.
8. Develop a relationship with a reputable collection agency in your area. Don’t be afraid to use their services once your internal collection methods have been exhausted. The longer you wait to act, the more difficult it becomes to collect. They will typically charge 15% – 30% of their collections, so be sure you have done everything you can before seeking their assistance.
9. Carefully monitor Customers who consistently take unauthorized deductions. This is an indicator that you have a problem with this account or your billing is not being done correctly. Either way, a red flag needs to be waved.