With the economy continuing to struggle, it has become more important than ever for business owners to ensure the clients they extend credit to can be trusted to make good on payments. Credit analysis is incredibly important when considering extending credit to a new customer, but many businesses fail to perform similar periodic checks on the finances of existing customers as well. A company may boast a sterling financial record when they originally open an account, but management changes or slowed business could cause that to change. Keeping this in mind, companies should develop a policy for periodically reviewing the credit accounts of their customers. Depending on the size of the business, different tactics will obviously prove more successful than others. Below are some tips to help get your business start creating a review policy:
- Review the largest 25-50 customer accounts once a year.
- If a client requests a higher credit limit, consider requesting up-to-date financial statements.
- Create a system to alert you of accounts that haven’t been reviewed in an extended period of time (6 months, 1 year, etc.)
- Review credit reports and be on the lookout for unusual patterns.
- Examine payment patterns from customers and determine if changes need to be made
Of course, each business has unique needs and will have to design a customized review policy for
existing accounts. Conducting credit checks on existing customers may be tedious, but can help prevent your business from needing to hire a debt collection agency to recover unpaid invoices from longstanding customers.
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