Tips & Strategies - April 2010

How to Create a Credit Policy

1. Do You Offer an Incentive for Early Payment? You may be willing to give a discount for payment on delivery or payment within 14 days, but watch your profit margins. You could also consider a rebate on the next invoice based on a percentage of the value of the month's purchases, but once again do your calculations.
2. What Payment Methods Will You Accept? Make sure your customers know how they can pay and offer as many options as possible. If you accept credit cards specify in your terms of trade and on your invoices which ones are accepted and what surcharges apply. You may want to charge 1% or 2 % extra for payments via Visa or MasterCard and 3% for Amex so you are not out of pocket. If it is practical for your business, a mobile Efpos machine is a great tool for getting paid on the spot as soon as the job has been completed.
3. Interest on Overdue Accounts -  You are legally entitled to charge interest if you mention it in your terms and conditions of trade document and your customer has been given a copy before you supply your goods and services. However you need to ensure the rate of interest is fair and reasonable or the courts may consider it an unfair penalty and void your interest clause altogether.  Contact Ledger Guard if you would like more information about charging interest.
4. What procedures need to be put in place if a Customer doesn't pay on Time? - It is more practical and less stressful to follow a documented list of procedures for handling overdue accounts rather than approaching different situations in an ad hoc manner. You will need to consider such things as who should be responsible for chasing up late payers, how much time should be allocated each week/month, when should you stop credit and only accept cash payments, when should you refer an account to a debt collection agency and when would legal action be considered. For more suggestions check out Ledger Guard's Oct, Nov and Dec newsletters on the subject of late payers.
5. How Should Disputes be Handled? First of all good credit procedures will minimise disputes with customers. The biggest mistake is to rely on verbal agreements. Even if you receive an urgent order take the time to get your paperwork signed. Your terms and conditions must be written clearly and precisely so your customers understand what to expect from you and what in turn is expected from them. Then be proactive and always check your customers are satisfied with your product or service. On completion of a job use a Customer Sign Off Form so you have confirmation in writing that your customer is satisfied with the quality of your work.  That is all well and good, but despite good business practices you may face a situation that has escalated into a dispute that you cannot easily resolve. Legal action is not always a viable option so you may want to consider 'Alternative Dispute Resolution' (ADR). Contact Ledger Guard for an emailed copy of an excellent booklet "Resolving Small Business Disputes". It covers: understanding your dispute, understanding your options, selecting an approach and accessing dispute resolution services.