When our company decides to sell goods and services on credit it is important to us to establish credit and collection policies. These policies help us manage one of our business's largest assets: the accounts receivable. How we manage this asset influences the bottom line and affects our ability to maintain the cash flow of our business. These policies should be clear, in writing, and should explain the business's standards for setting up accounts and collecting payments. We need to plan for the problem of collecting money from our customers, and we must develop guidelines as to how the problems will be handled.
The policy's goal should be, within the bounds of sound credit practices, to find a suitable credit practice in which every customer/client that desires to purchase our product or service can do so. The terms of our credit agreement need to be spelled out. We will decide on open account, limited account, and cash in advance, cash on delivery, or any other term of sale that is common to our industry.
Document requirements for an account to be opened. A properly completed credit application is a must. We also provide document related to our services and product. All the relevant data are spell out in detail the avenue of authority to be followed for approval or denial of a new account so everyone will understand where the responsibility lies.
Some customers will not or cannot pay their bill. That is why it is important to have a policy for collections. Our policy is including the steps for collection, and the specific sequence of these steps. Almost every account, no matter how long we have sold them or how well we know them, will become delinquent at one time or another. The asset of our services is protected while preserving the integrity of our customer base at the same time. It's a delicate balance.
