Do Business Well

Finish the application with a requirement that the president or majority owner sign and date the document, acknowledging that the above is true to the best of their knowledge under penalty of perjury.

B. Call the references. It is so common for companies to go to the trouble to compile this application and then not make any calls.

When you call, have a prepared form ready to fill in the information that you receive a credit limit. It is a very good idea to send them a letter congratulating them on being granted open account status and informing them of their credit limit. You may want to suggest that if their account is paid promptly, you will be happy to evaluate the situation later for possible increases in the credit line.

If you feel you must turn down any extension of credit at this time, it is also imperative that you send a letter so stating along with some reasons for your decision. You may wish to keep open the possibility of a later loosening in your policy based on X dollars of sales paid COD or other criteria. Your letter should be very diplomatic since, usually, you will not want to chase them away as a customer.

C. The credit limit should be shown at the top of the customer card, or included in the customer master file in your computer. Many computers will provide a signal to the operator before printing the order or invoice if that order would put the customer over their limit.

1. Invoicing is the next step in the collection procedure. As stated above, send out your invoices the same day you ship. Many companies put the invoice in an envelope on the outside of the shipping box. Sending your invoice this way presents too many opportunities for it to be lost. Mail the invoice.
2. Make certain that your terms are clear and concise. One of the credit card statements I receive from a major national retailer has no indication anywhere of a due date. Don’t make that mistake. Clearly show the invoice date, the ship date if different (it shouldn’t be), and the terms of sale. You may wish to go so far as to show the due date, and the amount saved if paid by an earlier date where applicable.
3. Send out a statement at the end of the month. Consider using your invoice and statement mailings as a place to advertise other products or services you sell, or to communicate things that are happening at your company.
4. Begin your collection procedure on the third day after the due date. You or your collection clerk should have a standard operating procedure for calling and writing to past due accounts. Here is my suggestion along with scripts for phone calls and suggested faxes or letters.

A. First phone call on third day: “Hi, my name is Rob. May I speak to whoever is in charge of paying the bills?” (This assumes that you don’t know. You want to speak to someone with authority to pay. The accounts payable clerk may not be the one who decides who to pay and when.)

“Hi, my name is Rob. I’m with Acme Printing. Are you responsible for paying the bills?” If the answer is no, you will want to ask who is. If yes, “I was going over our accounts receivable, and I noticed that you had this one little item that has just gone a few days past due. Since it was my recollection that you generally pay right on time, I was worried that you might not have received this item.”

What you are doing here is putting the person at ease. You compliment them by saying they usually pay on time. They might have been slow before, but you cover yourself by saying it is your “recollection” that they pay on time. You have also given them an out if they need it. “You’re right,” they respond, “I don’t show that item on my payables ledger.”

All of this may seem excessively polite when you are trying to collect from someone. However, my experience has shown that a small business will gain a great deal from this type of approach.

If they indicate that they do not have the invoice, offer to fax it right over. (A fax machine today is probably more important for many businesses than a typewriter.) If they don’t have a fax machine, mail a copy of the invoice with a brief cover letter asking for payment by return mail.

Whether by fax or by mail, call again when you figure they have received it. For the fax, wait an hour. For mail, two to five days, depending on what part of the country you are mailing to. When you call, ask for the person by name. Then ask if they have received the invoice copy. If yes, ask them when you can expect payment. If they respond in any way other than that they will send it right out, ask them why it cannot be taken care of immediately.

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