Are you offering clients 0% payment terms without even realizing it? Our three-part series can help stop the insanity.
Stop being your client’s bank: Set a credit approval process
You’re not a credit card company desperate for new customers, stop acting like one. Many of you may recall the days where credit card companies were offering 0% interest for 6 months. Those days are long gone….RIGHT? Well, it turns out that most middle-market size companies are doing EXACTLY this. Not only do they allow their customers to treat them like a bank, they allow their customers to treat them like a bank that is offering 0% interest rate terms. Why would any business do this? They do it without even realizing it….and it is costing companies thousands of dollars per year. How do you know if you are doing it and how do you stop? Follow our tips to check different aspects of your accounts receivable and get your company back on track.
Check credit backgrounds and set limits.
You would never allow your kids to eat much candy from the jar. But your business routinely does so your clients devour all your credit—or worse, cash reserves.
For starters, do you have a process to grant credit and credit limits to your customers? Many customer receivable problems occur because the company should never have extended this much credit to this type of customer in the first place. Screening in advance and providing credit limits is critical to avoiding these pitfalls. Our recommended process typically involves implementing a credit policy where new clients are screened according to a variety of factors (recommended by us according to industry and customer type) and provides authority levels for approval of credit limit terms based on a points system.
Oftentimes we find that companies fail to even look at the obvious screening opportunities such as social media or Google searches, they welcome handshake deals versus signed contracts, or they do not even have a customer credit application process. Creating, documenting, and adhering to these processes provides, among other things, a check and balance to an aggressive sales team that may otherwise be tempted to sell to a lower quality customer to hit their sales goals.
Have a process. Set sensible limits, get it in writing, and make your credit work for you. Need help getting starting cutting of credit suckers? Our team are experts at improving your financial strength. Your company money should be used to advance goals. If your organization is not doing this, Ask CFOSP How.
Shannon Carbone, CEO of CFO Strategic Partners
Shannon Carbone is the Founder and CEO of CFO Strategic Partners, a financial consulting firm headquartered in Central Florida offering CFO on demand, outsourced CFO, virtual CFO, and comprehensive accounting services for clients with either short-term or long-term needs since 1999.