Best Practices to Include in our Credit and Collections processes include
- All employees need to understand the mission and objectives of the credit department, so they deliver a consistent message to customers and properly represent the “culture” of your organization. Just as with customer service, the mission of the credit department has to be to make it easy to do business and to enhance – not get in the way of – the company’s success.
- Draft a Credit and Collection Policy manual that incorporates the department mission and objectives, credit approval limits, reviews, and responsibilities, as well as laying out the collection policy, including impact on credit lines, dates for assignment to agencies, etc.
- Start new customer on-boarding with a fully automated online credit application that captures all the information you need in one step and integrates with your enterprise financial and CRM systems. A best-in-class system will be automated “end-to-end”, eliminating the dozens of manual tasks and hand-offs, emails, faxes, off-line agreements, etc., and can save you over 80% of the labor and slash processing from many days to hours.
- Make sure that your processes are flexible and do not get in the way of on-time payment. For example, do you offer options of credit card, ACH and have you considered cash discounts (enforced) for early payment?
- Examine the causes of invoice payment delays and disputes, as they often have their root-causes embedded in your own operations.
- Make sure that your customers know who to contact with customer service or payment problems. They should have a single point of contact if possible, who has immediate access to the customer records, using an on-line CRM or enterprise system that has all records of business and contacts.
- Monitor your accounts and update credit reports regularly, no less than once a year, for changes in their credit risk profile, so you can raise credit lines when appropriate to increase sales, or are not blindsided with a preventable bad debt. Use payment and credit scoring systems to prioritize collection work to the customers most at risk, or those that do not pay on time unless you contact them. Set up collection strategies in your collection system, with pre-set collection steps and workflow so nothing gets overlooked.
- Measure your staff performance for DSO and delinquencies monthly. You should prepare cash flow and delinquency targets for all collection personnel, and they should be held accountable.
- Separate disputes and deduction resolution and management from invoice collections as they have a different experience, workflow, and resolution characteristics from the straight-forward routine collection work.
- Acquire an automated cash application system (“auto-cash”) that applies remittances in real-time. Cash should be applied and reconciled daily so backlogs do not accumulate. Use a system that assures 100% auto cash application.
- Evaluate and compare your outside agencies for collection rates, as well as customer complaints. Pay more attention to the net you get back and less to the collection percentage they charge. A more expensive service often delivers the best net return to you.
- Get training for your staff in collection techniques and psychology and, if you deal with consumers, the Fair Debt Collection Practices Act (FDCPA) is very important.
This is not meant to be a comprehensive list but a quick summary of common best practices for credit, collection, and accounts receivable management.