Best practices: collections.(selected topic)(Viewpoint essay)

Best Practices--the name implies a challenge in itself. If we had always maintained best practices for our endeavors and stuck to them, we would still be rubbing two sticks together to get a spark; but thankfully there have always been those that were willing to challenge any best practice approach and offer new techniques. Having said that, my first point to any best practice policy is to remain flexible. I know some will say that this contradicts the concept itself, but it's wise to always allow some flexibility for growth, change and innovation. However, along this line I would like to focus on one area within the management of credit, and that involves collections.

Before the Sale

Prepare for the best collection department your company has ever had. That should be reflected in your thoughts, your goals and your attitude. Be proactive, anticipate the need. To start, always remember that the best practice for collections happens before the account is past due, and even before the sale. Be sure to have a solid credit application on file for all new accounts. Make it specific for your industry and review it with a good collection attorney so they can give you suggestions on what they need in the event the account goes legal. I know for a fact that I will have bad debt each year, I just don't know which accounts will default. So, by having a general policy in place to get an application on all new accounts, we will be covered in the event of default. Also, always get a new application in the event of a name or address change. (Be sure that the person signing your application is authorized to do so; you may want to have verbiage in your terms section addressing this issue.)

If you are able to get a personal guaranty from your customer, then certainly do so as this will always give you greater leverage. I have my personal guaranty below my terms section on our general credit application. Be sure to research signature requirements for pulling consumer credit reports on a business owner for the purpose of business credit if you are going to use consumer reports.

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You want to have a separate section for the guaranty and a separate section for another signature authorizing you to pull consumer reports "for the purpose of granting credit to the business stated above" or some such wording. (I have this verbiage in the terms section in addition to including it in the personal guaranty.)

Include on your application a field for the accounts payable contact with their direct line, if possible, or some other way to communicate with them; and when setting up new accounts, be sure to include all this contact information. Collectors spend too much time trying to get valuable information that should have been gathered at the time the account was set up. If you have to, implement a new company-wide procedure on setting up new accounts so you get all the information you need at one time. Pretty basic stuff, but you would be surprised at how many companies skip these simple, yet valuable, steps.