By Dean Kaplan+
The goal of every in-house debt collection department is successful accounts receivable collections. This article is the first in a three part series detailing the benefits of and strategies for developing a written credit policy for your company.
There are numerous reasons for developing a written credit policy for your company. The most important reason is that the credit policy will help improve productivity throughout the entire company and will ultimately help add to the bottom line.
The in-house debt collection department is heavily involved in managing accounts receivable in your company. This is a serious and necessary function within any company because slow or no-pay customers can put negative pressure on overall cash flow. Since outstanding accounts receivable are a major asset of a company, obviously, a structured and reasoned approach to credit management is necessary and imperative. The foundation of credit management is the written credit policy.
A written credit policy provides a consistent framework for the entire company to work from in the accounts receivable realm. By detailing, in writing, the company’s policy on extending and managing credit, all arms of the company have a common goal, whether it is the sales, marketing, distribution or debt collection departments. In addition to this benefit, the written policy can stipulate credit-related responsibilities for particular departments, which may ultimately streamline operations and eliminate duplicate functions that independent departments may not even be aware of.
A written credit policy also provides the company with a way of treating every customer exactly the same way when it comes to credit and payment terms. With pre-determined parameters clearly spelled out in the credit policy, decision making becomes very straight forward relating to customer relations. This can empower employees across multiple departments to act fairly and with confidence when dealing with customers, especially if there is a credit problem.
Finally, by clearly making the written credit policy a priority within the company, this enables the debt collection department to enforce the terms to which each customer agreed when the original relationship began. If the entire organization is upholding the terms of the credit policy when conducting business, this makes the debt collector’s job much easier, because there is no “wiggle room” for the customer to use to slow payments or stop payments altogether. If either of these actions occurs, the credit policy will provide the debt collector with the tools he needs to take action, usually putting a stop to any further product shipments or services provided.
The bottom line is that developing a clear, written credit policy is more than a necessity. It is an opportunity to improve the efficiency and productivity within your entire organization, and to ultimately positively impact your company’s profitability. Sometimes the word “policy” can bring forth negative connotations relating to increased bureaucracy or inflexibility. Of course, some policies lead to these things. However, when developing your company’s written credit policy, it is important to realize that the document is a work in progress. The original credit policy, once put into practice, will most likely require revisions. If the entire organization is simultaneously implementing the credit policy, even more ways to improve efficiency and productivity will probably come to light. View these as opportunities for your company to become even more streamlined. The written credit policy truly can be a foundation for your company, a way to empower your employees, particularly your debt collectors, and provide a basis for exemplary customer relations.
The second article in this three part series about written credit policies will deal with the differences in written credit policies. If you would like to read the second article, use this link: How Credit Policies Affect Operations And Debt Collections. The third article in this series, Writing A Credit Policy To Assure Debt Collection Success, goes into the actual development of a written credit policy.
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.