Professionals in the credit and collections business point to certain key elements that improve overall collectability of accounts once they reach the point when they are placed into collections. The factor that is nearly universally agreed upon is age of the account from date of last sale at the time when it’s placed into collections. There are, however, other important factors that should be considered, many of which begin before a sale ever takes place.
Out with the old…
Understanding your new potential customer is a critical element in the pre-sales process. Many companies operate with a copy of a very old and outdated credit application as their prime source of pre-credit information. The problem lies in the fact that many regulations and laws have changed recently along with the economy, and many of the old tried and true methods of verifying customer information no longer apply. Updating your credit application to include such items as personal guarantees can go a long way in helping secure your company against potential bad debt risks. In collections, information is power. No one wants to believe at the time someone is requesting credit that they might eventually become a collection issue. That being said, it’s both necessary and responsible to do so for the protection of your company’s bottom line.
…in with the new
Along a similar line, it’s not always the new customer that ends up falling behind and having to be placed for collections. It’s important to send updated credit application forms to even your existing customer base periodically and ask that they update their information with your company. Things have likely changed since the last time they completed one. That information is vital if a worst-case scenario occurs. We recommend credit applications be updated every other year for all existing customers.
Information at your finger tips
In addition to an updated and robust credit application, making use of a commercial credit reporting company to run checks on prospective new customers can provide some really valuable insight into their recent history. Some reporting companies offer a simple and inexpensive single page report that will tell you what a prospective customer might be hiding. Many full service collection agencies partner with credit reporting companies and through your salesperson, you might find that gaining access to this wealth of information is easier and less expensive than you think.
Join the conversation!
Have you used any of the methods described above in evaluating the credit worthiness of new or existing customers? If so, share your experiences. If not, what has been your most proven customer evaluation method? Post your questions or thoughts in the comment field below!