The Seven Habits of Highly Effective Credit Managers
Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia.
Since forming a debt collection company many years ago, I have had the opportunity to meet many small and medium enterprises (SME’s) and company owners and see how they manage their accounts receivable internally. Some are good, some, not so good. I have seen some companies doing nothing to manage their receivables, and letting thousands of dollars written off as bad debt. Others have such well-managed internal systems; they have little or no bad debt.
Prevention of bad debt is the ultimate goal for better cash flow and profitability. However, as I have seen on many occasions, clients could have recovered their money if they had only taken a few precautionary steps in the beginning, or recognized the warning signs and acted sooner. Therefore, I thought I would summarise some of the best options for better credit control and accounts receivable by highlighting the seven habits of a highly effective credit manager.
1. A credit manager knows his customer.
Whether you gather information as you solicit or receive a sales lead, or after you have confirmed relationship, there are things you should gather right at the beginning that will help you service your client and prepare for a worst-case scenario down the road.
As the credit manager, get their personal information – name, date of birth, phone numbers at home and at work and their home address. Find out how they are going to pay you. Get employment information too, such as telephone numbers, income, and address. If your business model allows for it, get a voided cheque or credit card number and a signed agreement that you can run their debt against that account at a certain point.
Get them to fill out a credit application form. Make it very detailed and do not be afraid to ask for all their personal details as well. Ask them to sign a personal guarantee. The worst that will happen is they will say no. (You may send me an email or ring me so I can send you free templates on credit application forms or Personal Guarantee templates).
Have a contract! Make sure the customer is signing an agreement that services were rendered, and that they agree to pay any outstanding amount, plus any interest or charges that are reasonable.
2. A credit manager knows that information is power.
For credit managers of commercial or B-to-B clients, ask for details information. For instance, is the company legally known as a proprietorship, trust or a corporation? Who is ultimately responsible for the business client?
If you have the name of the principals of the company, get their direct contact information, so if you need to discuss the account with them, you can easily reach them. Telephone and cellular numbers, extensions, or email addresses are vital.
Ask how many years have they been in business. Are they stable? Ask for financial statements. Get trade references. Call them and ask what sort of record of accomplishments they have with them. Aim for other service providers – banks and financial institutions are less likely to share information.
You can make a reasonable assessment on how safe your new customer is once you have all this information. Write them down and keep them somewhere where you can access it but make sure your Accounts Receivable staff can access this information easily when contacting an outstanding account.
3. A credit manager reviews each client regularly.
So you’ve gathered all the information you need to deal with your client – but how often should you update it?
Keep records of communication with the client – it may give you information you need later. If you have been dealing with a company for a few years, it is possible they have changed banks, incorporated, sold shares, or moved.
I strongly recommended setting up a schedule to re-verify the customer’s information. It does not have to be too frequent – once a year would be fine. You can set this up as part of your customer support team’s efforts.
4. A credit manager watches for warning signs.
When clients with proven track records with you suddenly start slipping or stop communicating with you, it is often a sign of a greater problem that exists somewhere else.
To prevent this looming catastrophe, make sure you have limitations built in and advertised to your client in advance. If their accounts receivable go over 90 days, they cannot receive further service, or their credit limit with your company is subject to reassessment each year.
I ring each of my top clients every month, to see how they are doing. It is great to keep an eye on things by giving your clients a call. Moreover, when you do ring your clients, listen for any telltale signs of cash flow problems or warning signs. Keep a regular monitor on the volume of their purchases or services rendered.
5. A credit manager is strict with deadlines.
Having an absolute deadline for payment from any type of client often resolves a good portion of potential bad debts. I recommend credit terms of seven (7) days. Sounds strict but in today’s fast, automated, online world, payment within 7 days is quite realistic for most companies. If they cannot pay you in 7 days, do not do business with them.
Issue scheduled final notices, too. I like to issue them on the next day after your agreed terms. Make sure you email them. No one takes any notice of snail mail final demands anymore.
6. A credit manager is firm and consistent.
So many times, I have seen clients let an account age far too long, because they a) had sympathy for the customer’s situation, b) had a long relationship with the customer where “this had never happened before”, or c) they accepted continuous promises that the matter would be resolved.
Have an accounts receivable game plan and stick to it.
7. A credit manager outsources his debt collection.
This is where I come in, a debt collection expert. If a customer has not paid you, you have lost twice – you have lost the income you should have received, and you have lost time, manpower, and product in the meantime, trying to chase up the debt.
Do not let these matters go, no matter how much they are. Give them to a debt collection expert. Make sure you do this as soon as possible and give them as much information as you can, so their chances of recovery are higher. Make sure your collection expert has an online system for you to upload debts and get regular updates.
I hope these little credit manager habits from a debt collection expert have helped you. If you have questions regarding preventative measures in the credit cycle, accounts receivable management, or debt collection, feel free to contact me at Debt Recoveries Australia, 1300 799 511 or visit me at www.debtrecoveries.com.au. You can also Skype me at “debtrecoveries”.