If you extend credit to customers as a small business, you have an interest in maintaining that relationship, even if there is trouble. You don’t want a customer that isn’t paying their bills to pay too quickly. These are some ways to manage this risk.
Create a rating system
Each customer will be scored with a number. This number will represent who you will sell credit to and how much risk you are willing to take. There are scores that indicate customers that you won’t bill or those from who you won’t take orders because of credit risk. Create a system that assigns the score objectively. Both customer payment history and reports on external credit scoring are good indicators of credit risk.
Take a look at Credit Applications
Make a simple credit request. To pay the bill, the applicant should sign the application. You should get someone to sign the application if you expect large credit amounts. If the company fails to pay, this will give you an additional way to collect your money. This document must be signed if you want to use a collection agency for delinquent accounts.
Take a look at History
Credit lines must be monitored for payment history of those to whom they are extended. Reduce their credit limit if they are a regular late payer. You can move them to prepay only if they are frequently late.
Make notes on customer records
This will allow you to keep track of what late-paying customers tell you. This will allow you to identify honest customers and those who don’t pass the test. This allows customers to communicate with each other without interruption.
Create a collection system
A receivable age report is a monthly check that will help you determine your credit rating. This report will quickly reveal which customers are in trouble and who is not. You will know what to do if a bill is older than 30 days.
You should also look for other signs of trouble
Your team should be alert for the following:
- Customers pay smaller invoices, but larger invoices remain unpaid.
- The customer does not return phone calls or show irritation at your questions.
- All requests for information (e.g., updated financial statements) are not considered.
- A customer places large, multiple orders and asks for a higher credit limit.
- Customer tries to get you to provide a positive credit report to another supplier.
- You are informed that the customer’s credit rating was downgraded.
Great customers may have genuine problems paying their bills. A good credit rating system will help you identify customers who are likely to be late on their bills.
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