Debt Collection Policy and Procedures
Writing a Collection Manual

The Value of a Written Credit Policy

Sometimes having policies in place actually required more work to complete than the amount of value that they offer. This lack of meaningful value often leads to many policies and procedures being forgotten about. However, while some policies and procedures are not vital to the function of many businesses this is not the case in regards to a written credit and collection policy. Some policies and procedures are not vital, but a written credit policy is the exception and holds vast importance. As a debt collection attorney, the value of a written credit policy can’t be overstated.

Why Does It Need To Be Written?

The main point of a written credit policy is to remove confusion and make everything very clear. This type of policy is designed to remove all biases and make sure that all credit decisions are given the same credence. A policy in place will help to remove error and be well worth the tie investment that comes with creating a written policy. This type of credit policy should not be seen as a burden, but as a method to make debt collection simplified. It is a written plan in place that will make continuity attainable.

No Change          

Making sure that your debt collection procedures remain unchanged is only possible through the use of a written policy. This written policy can be consulted whenever a disagreement arises and you can still ensure that continuity is upheld even if turnover exists within your debt collection department. As long as the policy remains in place, it does not matter if employees change over time. Some employee turnover is unavoidable, but a written debt collection policy in place will make the transition smoother.

Fair and an Acceptable Training Method

When it comes to debt collection, fairness is of the upmost importance. A written policy in place is the easiest and most effective way to ensure that everyone is treated fairly. There are no biases that will arise when specific debt collecting procedures are in place. Decisions are easily made and no questions regarding fairness can be made. A written policy is a training tool that serves as a guide and can help to answer questions as they come.
Now common questions like evaluating credit worthiness and approving extensions will be made based solely on written policies. All human error will be removed from the equation. When it comes to using an effective training tool, nothing is better than a written debt collection or credit policy.

What Things Should Be Included In Policy?

Creditworthiness Evaluator

Determining credit worthiness should be broken down into a science. This will ensure that no one is discriminated against and all credit decisions are based on procedure only.  This means that all of the stipulations and guidelines for determining creditworthiness can be made easily accessible and can be understood by all parties involved. It helps to remove confusion and makes things function with more ease. It is now easy to determine if creditworthiness is obtained. Trying to figure out if someone is credit worthy without a policy in place can be maddening.

Terms of Sale

The largest benefit of written policy is that all terms can be clearly stated. This means that if there are company standards for terms of sale, they can simply be a part of the written policy. This also includes dates. Some companies are more willing to extend dates, but others are more stringent with debt deadlines. Having procedures written involving dating policy allows everyone to be on the same page and for less errors to occur. Everyone will clearly understand if extensions are a part of policy or not. Other terms that should be stipulated in the written credit policy include the conditions at which extensions are allowed and the amount of time that they are granted for. Having these policies in place is essential if extensions are a part of company policy.

Authority Limit

Credit managers do need some leeway when dealing with clients, but written policies can be used to limit their authority somewhat and give them guidelines to abide by. Debt collection does take a bit of flexibility, but details the consequences of going above authority and the signature requirements that are in place. Showing the members of management that can override decisions should also be a part of written policy.

Credit Files

Debt collection policy should also look to outline the amount of frequency at which credit files will be updated. This is not only vital to employees, but also important to individuals looking to manage credit risk. This means that terms used to identify when financial statements are necessary should also be in place and outlined for all to verify. The employees in charge of evaluating credit history should also be outlined and the guidelines for determining unacceptable credit risk should be clear allowing for no mistakes.

Contacting Customers

When it comes to contacting customers based on outstanding debt, it is essential to have a written policy in place. You have to determine how often customers will be contacted based on the amount of the past due debt and the time frame where contact begins. This means including in the written policy how soon a debt is seen as past due and how quickly a credit hold can be placed. Credit holds require even more detail, because the authorization of such a hold has its own terms. This involves deciding who can authorize a credit hold and what parties have to know about the credit hold. How notification takes place should also be included in the written policy and those that have authorization to withdraw open account terms should also be identified.
These are the main components of written policy and all of these questions and topics should be outlined and addressed to ensure that a full understanding of terms is reached. This is necessary for both employees and customers. Now everyone will know all terms and policy that are expected.

What To Avoid With Your Written Policy

It does not matter if you are creating new policy from scratch or updating old policy, there are certain things that you must avoid at all costs.

No Credit Policy Secrets

You do not want to make your credit policy concealed or hard to understand. This means that your credit policy should be understood and accessible to all senior management and all employees in general. It should also be noted that your policy must be slightly flexible. You have to have some leeway for those that are in charge of making credit decisions. Policies should be clear and concise, but the human factor should also be accounted for. However, this is a fine line because you do not want your policy to be so flexible that the guidelines are not clear. It can be difficult to create a written policy that strikes a good balance between rigid and flexible.

Update Often






A written credit policy is mandatory, but you can’t get comfortable with your procedure forever. You must regularly look to update your written policy and make changes as problems arise or credit restrictions become more complex. Your written policy is mandatory, but you have the ability to update and review it over time to ensure that it is still relevant.

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