Effective Credit policy

[Adam Randall]

Does anyone have an effective credit policy?

What I mean by that is, take an ISP or phone company, dont pay your bill by a certain date and you are cut off, no ifs, no buts, you lose the service and most likely have to pay reconnection fee and late fees.

The end result....everyone pays on time.

As a small business is there anyone out there in small business land that does this?

I am writing a credit policy at the moment which I intend to get all new clients to sign.

Existing clients would be left alone unless they are poor payers (I only have one poor payer left)

Some of the items that I want to put in:

1) Payment due within 7 days of receiving the invoice

2) Reminder sent at 14 days + $15 administrative charge

3) Account suspended at 21 days which means we will be unable to complete any work.

3b) At 60 days issue a default notice from the local court.

4) Serial late payments will mean that we will move the client across to prepaid work only which means they would have to buy a block of hours up front (minimum 10 hours) prior to any work being conducted.

[Heidi Price]

We have been lucky so far with client payments - mainly because we make sure they understand the clause in their contract outlining payments.

Basically, they have 7 days to bring their account up-to-date. If the site is still under development, we cease work. If they are at the management stage, we cease their regular reports and suspend any updates or additions. And for hosting, they get a "this site has been suspended" page blocking their site.

It may seem harsh, but we are running a business, and the business keeps a roof over our heads, clothes on our backs, and food on the table.

No client has objected to our policy (so far!).

Heidi

[ActiveCounselling]

Hi Adam,

I have setup a few credit/debt collection policies in the past. Mainly for wholesale type companies. The basics are:

1. 1. Your credit application must include the "rules" you will follow if they miss payment eg. if you plan to charge interest or use a debt collector then say so
2. 2. A phone call the day following payment was due
3. 3. If a promise is made during the phone call document it preferably by sending an email to the customer or at a minimum on paper stored with their file
4. 4. If the promise is not followed through then send a formal letter stating what you expect to happen and what you will do if payment is not received within 7 days
5. 5. If payment is then not received then we used to put them in the hands of the debt collector

We always charged the client for any debt collection costs. I think it cost $55 to put them in the hands of the debt collector. Amazing how quick they pay once their debt starts increasing due to collection costs.

Always talk dates with customers eg. you have promised payment on Wednesday the 20th. And always follow through with your policies.

For smaller debts that didn't warrant the debt collectors we would simply phone them every week until they paid.

In wholesale I tended to prefer a policy of putting someone on Cash terms with no discounts. That way everytime they purchased using cash we still made a profit. Often the customer must keep purchasing from you as they are usually on credit stop with all the other suppliers as well!

The squeeky wheel does get the grease and that is what debt collection is all about. Being persistent and making it easier for them to pay than it is not to pay.

We only missed twice from memory, once due to the debt collector refusing to take the debt as our business partner had ignored all our policies, leaving the debt collector with no real legal leverage. The second was a genuine bankruptcy.

I will try and dig out the original of some of the policies etc but it was a few years ago now. When doing it I got copies of a variety of applications/policies and picked out the bits I felt made sense.

I'm just happy I no longer have to worry about it as I get paid either in advance or at the end of a counselling session.

Hope that helps,

David

[tildavirtual]

I've only had two bad payers and I've had to write off the amounts as a bad debt.

Basically I have a subscription based service with three tiers. 5hrs, 10hrs and 20hrs a month. The more hours you use per month the less you pay. Client credit cards are processed on the 1st of the month for the following month (eg, 1st Feb for the month of February) and I issue a receipt for the payment. If the credit card does not get processed all work is stopped. I don't provide credit because I'm not a bank. I have a team of subcontractors that I need to pay on time and this helps my cash flow immensely.

With my hosting website, if clients don't pay by the due date, their website space is disabled until payment is received. Not getting their emails usually get's their attention and payment is normally if not always received before the due date.