1] Have a Defined Credit Collection Policy
One of the major causes of overdue receivables is that the business has not defined to its commercial customers and staff when accounts are to be paid. If commercial customers are not educated that accounts are to be paid on time, then chances are they'll pay late or sometimes not at all. Make sure that your company's terms of payment are clearly stated in writing to each commercial customer.
2] Invoice Promptly and Send Statements Regularly
If you don't have a systematic invoicing and billing system, get one. Many times the commercial hasn't paid simply because they haven't been billed or reminded to pay in a timely manner. This situation usually occurs in smaller or newer businesses where they're short on staff to invoice and bill.
3] Use "Address Service Requested"
One of the most difficult collection problems is tracking down a commercial customer who has "skipped". All businesses should be aware of a special service offered by the Post Office. Any statement or correspondence sent out from a business or professional office should have the words "Address Service Requested" printed or stamped on the envelope, just below your return address in the top left corner. If a statement or invoice is sent to a customer who has moved without informing you of their new address, and the words "Address Service Requested" appear on the envelope, the Post Office will research this information and return the envelope to you on a yellow sticker that gives the new address or other updated information. If the customer has placed a "forwarding order" with the Post Office, the Post Office is required to forward the envelope to the customer and give you a form #3547 with the new address and charge you approx. 50 cents. This will keep your address files up to date.
4] Contact Overdue Accounts More Frequently
No law says you can contact a commercial customer only once a month. The old adage "The squeaky wheel gets the grease" has a great deal of merit when it comes to collecting delinquent accounts. It's an excellent idea to contact late payers every 10-14 days. Doing so will enable you to diplomatically remind the commercial customer of your terms of payment.
5] Use Your Aging Sheet, Not Your Feelings
Many businesses (or well-meaning people on their staff) have let an account age beyond the point of ever being collected because he or she "felt" the customer would pay eventually. While there are a few isolated cases of unusual situations, the truth is that if you aren't being paid, someone else is. So stick to your systematic plan of follow up. You'll soon know who intends to really pay and who doesn't. You can then take appropriate action once you know where you stand.
6] Make Sure Your Staff is Properly Trained
Even "experienced" staff members can sometimes become jaded when dealing with delinquent commercial customers. This usually occurs when they have made and broken promises for payment. Make sure the staff is firm, yet courteous when dealing with them. Your collection staff could benefit from customer service training because, in effect, they must "sell" your commercial customers on the idea that you expect to be paid. Make sure that your collection staff is trained to not only bring the account current, but to also maintain good will with them.
7] Keep Accurate And Timely Payment Records
Once a new commercial customer is accepted on credit, it is vitally important to maintain accurate and timely records on their payment history. If you see any deviation from past payment patterns, and especially if payments become unusually slow, immediate follow-up is warranted. This not only gives you an early alert to impending payment problems, it also gives you the chance for early intervention if there is an outside influence.
8] Follow the Collection Laws in Your State
In many states, businesses are governed by the same collection laws as are collection agencies. For example, calling customers at an odd hour or disclosing to a third party that they owe you money are just a couple of the numerous collection practices that can cause serious repercussions. If you're not sure, call your state's department of finance which governs and monitors collection agencies. Click Here for a summary of the Fair Debt Collection Practices Act.
9] Use a Third Party Sooner
If you've systematically pursued your delinquent commercial accounts for 60 to 90 days from the due date, (and they still haven't paid) you're being delivered a message by your client. More than likely, you've requested payment four to six times in the form of phone calls, letters and statements. Statistics show that after 90 days, the effect of in-house collection efforts wears off 80%". That means that the time and financial resources budgeted for commercial collection efforts should be focused within the first 90 days where the bulk of your commercial accounts can and should be collected. From that point on, a third party can motivate a commercial customer to pay in ways you cannot, simply because the demand for payment is coming from someone other than you. Before paying a percentage to a commercial collection agency, or using small claims court or an attorney, check into using a fixed flat fee collection service.
10] Admit And Correct Any Mistakes On Your Part
Sometimes your commercial customers do not pay because they feel you have made a mistake. Unfortunately, many commercial customers believe that "the owner/president doesn't need the money". Denying an obvious error only fans the fire of resentment your customer may already feel. If the basis of the non-payment is a dispute over the quality of your product or service, a mutually agreeable settlement between you and the customer should be arrived at promptly. The commercial customer may use a minor dispute to withhold substantial payment. Insist that the undisputed portion get paid immediately, indicating the balance will be negotiated. This will not only help to collect payment payment, it shows the commercial customer that you are listening to his or her concerns.
11] Remember that Nobody Collects Every Account
Even by setting up and adhering to a specific commercial collection plan, there are a few commercial accounts that will never be collected. By identifying these accounts early, you will save yourself and your company a great deal of time and money. Even though a few may slip by, you'll find that overall the number of slow pay and nonpaying commercial accounts will greatly diminish, and that's a victory in itself!
25 years in the credit business and this is one of the better articles I have ever seen on managing credit. Andrea has done a excellent job of working through the myths and offering facts.
10 tips for improving your credit standing
By Andrea Coombes, MarketWatch
SAN FRANCISCO (MW) -- There are about as many personal-finance resolutions as there are Americans to resolve them, and yet few of them are as wealth-enhancing as improving one's credit standing.
Over a lifetime, getting lower rates on mortgages, auto loans and credit-card debt can lead to hefty savings, enough to fund a good portion of any retirement
"Those who are A-credit vs. those who are D-credit throughout their work-life span will pay approximately $250,000 less in interest," said Paul Strassels, author of Credit When Credit Is Due, a financial-education program offered by consumer credit counseling agencies for about $50.
"You can pay a quarter of a million dollars to the credit card company or you can keep the quarter of a million and use it as you please and invest it in your own retirement," he said, adding that his estimate is based on an average 30-year home mortgage, car loans, and credit card debt.
And increasingly, even the types of jobs and rental housing available to you can depend on your credit score. "Credit has much further reaching implications than it used to," said David Chung, vice president of business development at CreditXpert, Inc., a maker of credit-assessment technology tools used by businesses to aid consumers, based in Towson, MD.
Credit reports are "used in many different ways outside of financial transactions, including employment screening," Chung said. "Even if you're going to rent an apartment, one of the first things they're going to do is check your credit. Based on that, apartment complexes will determine how much or whether or not you have to pay a security deposit."
To polish your creditworthiness and jump-start your savings, the first step is to determine your long-term financial goals. A consumer planning to buy a new car and a house should consider the order of those purchases carefully, Chung said.
For instance, it's beneficial to have at least one installment account on your credit file. A consumer with only revolving accounts might want to purchase the car first, so that installment loan boosts the credit score and improves mortgage offerings.
But if an auto loan is going to end up lowering your score -- perhaps by saddling you with a high level of debt -- wait until after you've gotten the mortgage, so you don't end up paying a premium on that longer-term debt.
The following are some more tips for ramping up your creditworthiness.
Be wary of credit scoring's hidden levers. Every time you apply for a new retail store credit card, your credit score takes a hit. And negative information that's old is sometimes better left alone, Chung says. A 5-year-old collection account loses its punch as it ages. When you pay it, "it goes from being a 5-year-old account to being a current collection account," he said. "It's better that it's paid, but it's worse that it's current and not 5 years old ... I don't want to advocate that people not pay back money that they owe, but it's important to understand what's going to happen when you pull which lever."
Don't consolidate credit-card debt and then close out old cards. Consumers who consolidate all cards into one are "effectively killing their credit history from other cards," said Steve Rhode, president of MyVesta.org, a nonprofit consumer-credit counselor. "If you're trying to improve your credit report, your credit history is one of the biggest factors."
Find your weaknesses. It's likely tattooed on most readers' brains by now, but checking your credit reports at all three reporting agencies -- Experian, Equifax, TransUnion -- remains crucial to understanding what credit-repair work lies ahead for you. Also, married couples should get individual reports, and consumers should collect FICO scores from all three reporting agencies. Among her clients, not one person has received the same score from all three agencies, said Deborah McNaughton, president of Professional Credit Counselors, a consumer-credit counseling firm. "Some of the creditors may only subscribe to one or two and not all of them, which would make a difference on the reporting (and) sometimes there may be inaccurate negative information on one report and not the other."
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? Get your credit score and your credit reports
Prioritize your debt. "Total up the damage from the holiday season and the previous year," said Kelly Rote, spokeswoman with Money Management International, a consumer credit counseling agency. "Write down the names of your creditors and how much you owe each and what interest rate they are charging. It gives you a sense of where you are. You need to assess where you are financially today before you can make goals for where you want to be tomorrow."
Pay your bills on time, religiously, another key to improving credit scores. "The biggest impediment people face is not knowing what their debt is and when it is due on a monthly basis," Strassels said. "By prioritizing those bills that have to be paid, and then divvying up the balance of what you can afford to pay -- with a calendar of due dates -- you can prioritize the debts and you can get them paid in a timely manner every month." Also, married couples should pay bills together, so any divergent goals can be discussed each month, he said. Pay credit-card debt down to about 30 percent of available credit limit. Exceeding that percentage of your credit limits can lead to a lower credit score.
Get visual. If you're determined to pay off credit-card debt in order to up your credit score to enable, say, a future home purchase, remind yourself why you're working so hard. Paste photos of your dream house -- or at least an affordable house -- near your computer or on your bathroom mirror.
Ease up on your charge card. "A lot of resolutions are 'I'm going to pay off all my credit cards' ... But they're still charging on the cards," McNaughton said. "If you're going to have a New Year's resolution of paying off all your credit card debt, then you need to quit charging. It sounds so simple, but that's what happens: They keep charging.
Negotiate with creditors. If you're struggling with debt and worried about late payments, get on the phone. You might say, "I know I owe you $200 this month, I can only pay you $20 and I need you to eliminate the interest and eliminate the late fee. What can you do for me?" Strassels said. "Learn to negotiate your way through the maze.
Weigh your debt load. If more than 10 percent of your income is going to pay off debt each month, get cracking on a budget. "Fifteen percent means red flags are going to start flying," McNaughton said. "Twenty percent and you've got problems." But remember: Don't include your mortgage payment in that debt calculation
Finally, don't let credit problems in the past stop you from planning for future goals, such as buying a home or car.
And remember that a bad credit score can be improved, with time. Said Rote: "Like working out, it's never too late to make positive changes to your credit. The only real cure for a bad credit report is time."