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    What Is A Credit Collections Policy

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    Han O
    A credit collections policy outlines guidelines for selling goods on credit, including customer qualification criteria, procedures for collections and dealing with delinquency. It provides an organized philosophy for sales, collections and managing accounts receivable. Having a formal policy ensures consistency between teams and protects cash flow by arming employees with predefined best practices. While policies should be reviewed annually, many companies review theirs only every 2-3 years or as needed, putting their cash flow at risk. Consistency in collections is important for optimizing resources and cash flow.

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    What Is A Credit Collections Policy

    Uploaded by

    Han O
    37 views2 pages
    A credit collections policy outlines guidelines for selling goods on credit, including customer qualification criteria, procedures for collections and dealing with delinquency. It provides an organized philosophy for sales, collections and managing accounts receivable. Having a formal policy ensures consistency between teams and protects cash flow by arming employees with predefined best practices. While policies should be reviewed annually, many companies review theirs only every 2-3 years or as needed, putting their cash flow at risk. Consistency in collections is important for optimizing resources and cash flow.

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    WHAT-IS-A-CREDIT-COLLECTIONS-POLICY

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    A credit collections policy outlines guidelines for selling goods on credit, including customer qualification criteria, procedures for collections and dealing with delinquency. It provides an organized philosophy for sales, collections and managing accounts receivable. Having a formal policy ensures consistency between teams and protects cash flow by arming employees with predefined best practices. While policies should be reviewed annually, many companies review theirs only every 2-3 years or as needed, putting their cash flow at risk. Consistency in collections is important for optimizing resources and cash flow.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    37 views2 pages

    What Is A Credit Collections Policy

    Uploaded by

    Han O
    A credit collections policy outlines guidelines for selling goods on credit, including customer qualification criteria, procedures for collections and dealing with delinquency. It provides an organized philosophy for sales, collections and managing accounts receivable. Having a formal policy ensures consistency between teams and protects cash flow by arming employees with predefined best practices. While policies should be reviewed annually, many companies review theirs only every 2-3 years or as needed, putting their cash flow at risk. Consistency in collections is important for optimizing resources and cash flow.

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    WHAT IS A CREDIT COLLECTIONS POLICY?

    WHAT IS A CREDIT COLLECTIONS POLICY?


    A credit collections policy is a document that includes “clear, written guidelines that set the terms and
    conditions for supplying goods on credit, customer qualification criteria, procedure for making collections, and
    steps to be taken in case of customer delinquency”.
    In fewer words, it is a guide offering an organized and repeatable philosophy on selling on the rules,
    regulations and procedures to manage daily operations. The goal for a credit collections plan is to clearly
    define these elements so that sales and collections employees conform to documented steps and procedures
    designed to optimize your resources, reduce credit risk, and improve overall cash flow.

    WHY IS IT IMPORTANT TO HAVE A CREDIT COLLECTIONS


    POLICY IN PLACE?
    Along with cash and inventory, accounts receivable is one of the most important short-term assets a company
    has. The more predictably and effectively you can convert your A/R, the healthier your cash flow will be. One
    of the most important factors in effectively collecting the money owed to you is through consistency. By
    having a formalized plan that your employees follow and by documenting all steps and communications along
    the way, you’re team will be much more consistent, effective, and efficient in collecting outstanding A/R.
    A well written and comprehensive credit collection policy will:

    o Ensure continuity in the department in the event that key personnel leave the credit department.
    o Help make sure all customers are treated fairly.
    o Ensure consistent credit decisions are being made.
    o Be used as a training tool for new sales associates and the credit and collections team.
    o Be used to ensure consistency of procedure and execution between the credit department, sales, and
    management.

    Your policy can be as general or as specific as you would like, just keep in mind that in order to protect your
    cash flow, arming your employees with knowledge and predefined best practices and procedures is best so they
    always know what to do in certain situations and can react quickly and confidently to resolve any problems or
    answer any questions.

    KEEPING YOUR CREDIT COLLECTIONS POLICY UP TO DATE


    Once you’ve developed your collections policy, it is important to update it regularly and make sure it is still
    relevant and effective. It is recommended that this be done once every year, but a recent survey from Credit
    Today revealed that nearly 50% of companies are reviewing their policy far less frequently. Some of the major
    points from the study include:

    o 19% said they review and adjust their policy every 2 years.
    o 13% said they review and adjust their policy every 3 years.
    o 15% reported they only review and adjust their policy when they need to.
    o 12% said “other” which really makes you wonder the last update took place.
    o SMB businesses are by far the worst offenders of neglect when it comes to their collections policy,
    and these are the companies who should be the most invested in formulating an A/R strategy that
    brings in the cash flow they need to grow their businesses.

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