This article will focus on the best internal collection practices for your small business. This article assumes your business already has a credit policy in place and a collection policy in place. Also keep in mind that this article is focused on commercial as opposed to consumer collection matters although there are similarities between the two.
So with credit and collection policies in hand, the first thing a business must do to implement best internal collection practices is to decide what department and who in that department will actually do the credit/collection work. This is an important step as the individual can have a large impact in the success or failure of the established policies.
For larger companies that have a credit department, it usually makes sense to have the collection work take place within the credit department. For smaller businesses it makes sense to set up a credit/collection department with one or two people responsible for handling the credit/collection work. The key to selecting the right credit/collection people in your company is not simply determining who has the most time available. The decision should be based on the specific skill sets of the individuals.
Skill sets for the credit person should include:
- Knowing how to work with the proper credit bureaus and credit reporting services.
- Knowing how to analyze a credit report.
- Knowing how to create credit limits for customers based on credit information.
- Knowing when to extend or retract credit limits established for customers.
- Having the time to not just establish initial credit limits but also to periodically review credit limits to determine if they should be increased or decreased.
- Having the ability to work with sales and operations to ensure credit policies are adhered to.
Skill sets for the collection person should include:
- Having a combination of a sales perspective and a customer service perspective.
- Able to be level headed in a stressful environment.
- Able to be stern and professional yet strong and deliberate.
- Able to understand where debtors are coming from even if you disagree with their position or tactics.
- Able to be forceful when necessary.
- Motivated by success not just effort as internal collectors should be compensated with a salary plus commission or bonus structure.
Just because someone has free time, it does not mean they are good candidates for a credit/collection position. Take the time to find the right people for the job and it will pay dividends in terms of saving your company money as a result of implementing and executing effective credit and collection policies.
About the author:
Brad Magill is a lawyer and a CPA with over 20 years’ of business and accounts receivable experience. He is also the founder of The Collection Law Group, Inc.