Commercial Collections And Credit Granting
It is estimated that billions of dollars in delinquent commercial credit is currently being carried on the books of both American and international businesses. This figure changes as our economy grows or contracts. Increased competition, diversification of product lines seem to indicate that these figures will continue to move upward. Regardless of the state of either the national or international economy, the necessity to grant credit and to collect commercial receivables using professional methods remains vital to all businesses.
Credit Sales Volumes Are Important
The average commercial business sell between two to five percent of their products for cash. The credit department is responsible for the other 95 to 98 percent of the goods and/or services sold. Businesses have varying percentages of their financial resources tied up in receivables. Actual losses might range from one-half of one percent to five percent of sales without serious results. This depends on profit margin and other factors. Losses can explode to significant sums very fast if not restricted by the credit manager.
Good Customer Relations Are Paramount
The credit department must also be in tune with customer relations. This quality is absolutely necessary in order for the company to prosper when selling on credit. It is very, very easy to say "no" to prospective customers, and it is also very easy to firmly demand payment at the time of the sale. If this attitude reduces sales, then the credit department is not performing its complete function, which is to create a balance between sales and collection of money.
When extending credit to a new customer, the following basic information should be harvested for your credit evaluation and kept on file:
Is the firm individually owned, a partnership or a corporation? You must obtain full names of owners, partners or officers and all business addresses. This is a must. A follow-up form letter to the hastily approved customer may supply this information and the local city directory may be helpful with details of ownership or tenancy. You should, however, get the information before delivery of the merchandise.
How long has the applicant been in business?
Statistics show that 50 percent of business failures are firms less than one year old, 75 percent are less than five years old.
At what bank does the applicant do business?
What is the average size of his bank balance and are there any loans outstanding? The customer may have a financial statement which will reveal this, and certainly a phone call to their bank manager is in order. They might only confirm the existence of an account, unless your customer pre-approves release of the details. A carefully worded and signed application will gain you the most information.
What do the records show?
Are financing agreements kept, or have legal suits been filed? If the amount of credit requested is substantial, additional financial information may be secured from an outside credit information source such as another supplier trade association or business reference. n What are some of the business firms with which the applicant is currently dealing? You will want to check with at least three companies to determine how much credit has been extended and the creditors' payment experience with the applicant company. This procedure may help you and other businesses in exposing customers who exploit their suppliers.
Search for Patterns of Problems
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 under-trained. In the desire to sell, they may make promises that lead to collection problems. When such a pattern develops in an area, it would then 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 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. 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.
Get free information and advice on commercial collections.
Latest News
 Straits Times | Government plans new credit, mortgage programs O Jornal, MA - The Fed program for consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans such as credit cards, ... Washington’s $6.3 trillion bailout US Unveils New Programs to Ease Credit Thanksgiving surprise: $800 billion more for the credit markets |
Kenexa to Present at the Credit Suisse Annual Technology Conference MarketWatch - a global provider of talent acquisition and retention solutions, today announced that its Chief Financial Officer, Don Volk, is presenting at the Credit ... Digital River CFO to Speak at the Credit Suisse Annual Technology ... Brocade Corporate Controller, Charles Read, to Present at Credit ... |
 CEP News | Goldman off as Credit Suisse calls for $4 a share loss MarketWatch - "October was a difficult month; November-though we were hopeful-was really no better with asset prices for equities, credit and real estate-only coming ... US bank stocks tumble again as gloom deepens Ahead of the Bell: Morgan Stanley acquisitions |
Realtors(R) Federal Credit Union Hires Thomas A. Glatt as First CEO MarketWatch - WASHINGTON, Dec 01, 2008 /PRNewswire via COMTEX/ -- The REALTORS(R) Federal Credit Union board of directors today announced that veteran credit union leader ... |
 Post Chronicle | Sector Snap: Consumer Lenders CNNMoney.com - NEW YORK (Associated Press) - Consumer spending is likely to decline as the nation's largest credit card lenders cut customers' credit lines over the next ... Credit card industry may cut $2 trillion lines: analyst The Death of Credit Cards Late barely better than never |
 The Jewish Journal of greater L.A | Pastor apologizes for church credit card use San Jose Mercury News, USA - AP LOS ANGELES—The pastor for First AME Church in Los Angeles has apologized to his flock over his use of a church credit card for $122000 in personal ... First AME pastor's credit card charges probed First AME pastor apologizes to congregation for alleged misspending |
ExpressJet to Present at the Credit Suisse Global Airlines Conference MarketWatch - today announced that the company will present at the Credit Suisse Global Airlines Conference in New York City. Jim Ream, President and CEO, will present a ... |
'Coupons' & 'Credit Scores' Top Ask.com's Real Deal List of Most ... MarketWatch - Credit score Ask searchers were hunting down deals for all facets of their everyday lives, demonstrated by top queries for "cheap," "used," and "discount" ... |
United Online to Present at the Credit Suisse 2008 Technology ... MarketWatch - ... and Scott H. Ray, Executive Vice President and Chief Financial Officer, will present at the Credit Suisse 2008 Technology Conference in Scottsdale, ... |
 Wall Street Journal Blogs | Restoring the flow of credit to entrepreneurs Los Angeles Times, CA - By Cyndia Zwahlen The credit crunch looks like an espresso machine. At least it does to Michael McDonald, who is trying to open a coffee shop near UC Santa ... BIZ VOICE: Banking on small guys Federal Credit Facility Aims to Thaw SBA Lending SCORE: Enjoy the upside of a down market by thinking outside the box |
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