In challenging times like these, businesses must keep a watchful eye on their customer accounts receivables or they may find themselves holding an empty bag when their customers fall upon hard times.
Across virtually all industries, this economic downturn has created business challenges, including uncollectable accounts, increases in accounts receivables and customers taking more time to pay their balances. Fortunately there are several tools available to businesses that will help minimize losses on customer accounts. But for the most part, these tools are only helpful if used properly and in advance.
Keep in mind that whenever you are selling goods or providing services to a customer and you are not getting paid in advance or at the time your goods or services are delivered, you are extending credit to that customer.
• Be selective about customers who receive your credit. Consider your review process and develop procedures to determine if and when credit is extended to customers. Regularly and periodically re-evaluate the amount of credit available to each customer based upon their payment history and prior dealings. For a customer that has fallen unacceptably behind on payment, don’t be afraid to cut off credit and require cash on delivery, or even cut them off completely until their account is made current.
• Review or establish credit terms to provide sufficient incentives for your customers to pay in a timely manner and avoid using your business for an interest-free loan. These terms should be clearly printed on all customer invoices and statements and, if applicable, should contain an agreement provision providing a security interest for any goods that can serve as collateral. To encourage prompt payment, consider offering a discount to your customers when they pay on time and in full.
• For larger accounts, consider a formal line of credit that requires an application and is secured by the assets of the customer and/or its principals – and perhaps by personal guarantees of the customer’s principals. Depending on your business, it may also be effective to perfect certain security interests in goods sold (such as filing UCC financing statements) to retain priority over other creditors in the event that your customer defaults.
• Finally, track your accounts accurately and keep records of all invoices, statements and customer communications in the event of a disagreement or court appearance. By making an effort to communicate frequently with your customers about their account and payment status, you will be miles ahead in making sure that you get paid in a timely manner.
