Watch for Patterns of Problems

This article focuses on Commercial B2B Credit Collections.

This series of articles come from a fantastic publication put out by the IACC  (International Association of Credit Collectors).   It is well grounded and fundamental advise that should be ready by any professional involved in credit collections.

It is a constructive idea to analyze those customers who have become collection problems and to note reasons for their delinquency. A pattern will probably be revealed. It may be found that some collection problems involve businesses which were in operation less than a year at the time credit was originally granted. This is a “red flag.” It does not mean that a new business should be denied credit, but it does mean that additional information should be obtained to ensure that the business is potentially a good credit risk.  Sometimes the credit manager will have to deal with a sales person who is overanxious or undertrained. In the desire to sell, they may make promises that lead to collection problems. When such a pattern develops in an area, it would be wise to advise the sales manager about the problem. It is often expedient with large orders to send the potential customer a letter spelling out credit terms.

Some Delinquencies Are Unavoidable

It is inevitable in granting credit that certain conditions cannot be foreseen and that there will be unavoidable delinquencies.

It is usually an acceptable company policy that credit losses within certain percentage limits can be sustained, as growth can only be achieved by reasonable risk taking. Reserves for bad debts and collection costs are an acceptable and recognized expense for business. A too-tight credit policy can dry up potential growth, and a too-loose credit policy can be a great expense.

By granting credit intelligently and by following good billing and collection procedures, it is possible to hold risk to an acceptable figure—to a balance between company growth and losses due to bad debts.