Commercial Collections And Credit Granting

It is estimated that billions of dollars in delinquent commercial credit is currently being carried on the books of both American and international businesses. This figure changes as our economy grows or contracts. Increased competition, diversification of product lines seem to indicate that these figures will continue to move upward. Regardless of the state of either the national or international economy, the necessity to grant credit and to collect commercial receivables using professional methods remains vital to all businesses.

Credit Sales Volumes Are Important

The average commercial business sell between two to five percent of their products for cash. The credit department is responsible for the other 95 to 98 percent of the goods and/or services sold. Businesses have varying percentages of their financial resources tied up in receivables. Actual losses might range from one-half of one percent to five percent of sales without serious results. This depends on profit margin and other factors. Losses can explode to significant sums very fast if not restricted by the credit manager.

Good Customer Relations Are Paramount

The credit department must also be in tune with customer relations. This quality is absolutely necessary in order for the company to prosper when selling on credit. It is very, very easy to say "no" to prospective customers, and it is also very easy to firmly demand payment at the time of the sale. If this attitude reduces sales, then the credit department is not performing its complete function, which is to create a balance between sales and collection of money.

When extending credit to a new customer, the following basic information should be harvested for your credit evaluation and kept on file:

Is the firm individually owned, a partnership or a corporation? You must obtain full names of owners, partners or officers and all business addresses. This is a must. A follow-up form letter to the hastily approved customer may supply this information and the local city directory may be helpful with details of ownership or tenancy. You should, however, get the information before delivery of the merchandise.

How long has the applicant been in business?

Statistics show that 50 percent of business failures are firms less than one year old, 75 percent are less than five years old.

At what bank does the applicant do business?

What is the average size of his bank balance and are there any loans outstanding? The customer may have a financial statement which will reveal this, and certainly a phone call to their bank manager is in order. They might only confirm the existence of an account, unless your customer pre-approves release of the details. A carefully worded and signed application will gain you the most information.

What do the records show?

Are financing agreements kept, or have legal suits been filed? If the amount of credit requested is substantial, additional financial information may be secured from an outside credit information source such as another supplier trade association or business reference. n What are some of the business firms with which the applicant is currently dealing? You will want to check with at least three companies to determine how much credit has been extended and the creditors' payment experience with the applicant company. This procedure may help you and other businesses in exposing customers who exploit their suppliers.

Search for Patterns of Problems

It is a constructive idea to analyze those customers who have become collection problems and to note reasons for their delinquency. A pattern will probably be revealed.

It may be found that some collection problems involve businesses which were in operation less than a year at the time credit was originally granted. This is a "red flag." It does not mean that a new business should be denied credit, but it does mean that additional information should be obtained to ensure that the business is potentially a good credit risk.

Sometimes the credit manager will have to deal with a sales person who is overanxious or under-trained. In the desire to sell, they may make promises that lead to collection problems. When such a pattern develops in an area, it would then be wise to advise the sales manager about the problem. It is often expedient with large orders to send the potential customer a letter spelling out credit terms.

Some Delinquencies Are Unavoidable

It is inevitable in granting credit that certain conditions cannot be foreseen and that there will be unavoidable delinquencies.

It is usually acceptable company policy that credit losses within certain percentage limits can be sustained, as growth can only be achieved by reasonable risk taking. Reserves for bad debts and collection costs are an acceptable and recognized expense for business. A too-tight credit policy can dry up potential growth. A too-loose credit policy can be a great expense.

By granting credit intelligently and by following good billing and collection procedures, it is possible to hold risk to an acceptable figure-to a balance between company growth and losses due to bad debts.

Get free information and advice on commercial collections.

---

Why Should You Use Credit Cards

Believe it or not, the way society, especially the commercial... Read More

Discover the Parts of a Credit Report and What They Mean

So you ordered a copy of your credit report to... Read More

5 Surefire Ways To Eliminate Credit Card Debt

Do you have enormous credit card debt? You are certainly... Read More

Clean Credit Report: Easily Raise Your Credit Score 100 points

Clean Credit Reports, your credit report contains information about where... Read More

Choosing A New Credit Card

1. Choosing A new credit cardThere are many reasons for... Read More

Credit Counseling: Is it Really Necessary?

Not everyone has a positive experience with credit counseling. Potential... Read More

Will Inquiries Lower Your Credit Score?

What are inquiries?When you apply for credit the creditor or... Read More

Bad Credit? No Credit? Yeah, Its a Problem.

Many companies use the slogan "Bad Credit? No Credit? No... Read More

Free Credit Reports: From The 3 Major Credit Bureaus!

Get your credit report online for FREE. Many financial advisors... Read More

Credit Counseling: Could it Work for Me?

In the face of financial hardship, many seeking a responsible... Read More

Your Credit Rating and How To Check It

There is a lot of confusion surrounding UK credit ratings,... Read More

Credit Scoring: What You Dont Know Can Hurt You

You've probably heard the term credit scoring. You may have... Read More

Credit Repair Myths and Facts

There are no secrets to repairing your credit. Many shady... Read More

Useful Tips On Avoiding Credit and Charge Card Fraud

Credit and charge card fraud costs cardholders and issuers hundreds... Read More

Choosing The Credit Card That Is Right For You

Credit cards represent an important part of our financial lives.... Read More

Understanding Your Rights Under The Equal Credit Opportunity Act

It wasn't all that long ago that lenders blatantly discriminated... Read More

Stop Credit Card Offers

You can stop receiving credit card offers in the mail!... Read More

The Truth About Credit

What you might not know about credit.Some people don't know... Read More

How to Improve Your Credit Rating

So you got into debt, had problems but you got... Read More

Low Interest Credit Cards: A Thing of the Past?

With interest rates rising, low or zero percent credit cards... Read More

14 Common Credit Mistakes

Establishing credit and wisely managing your credit becomes easier when... Read More

How To Choose A Credit Card

Your credit score may just be a little number, but... Read More

What Is a FICO Score and How Do I Make It Work for Me?

Whether or not you receive a loan and what interest... Read More

What Is the Fair Credit Reporting Act and What You Should Know About It

The Fair Credit Reporting Act (FCRA) and the recent update... Read More

What is Credit Repair and How Can It Help You?

There are millions of consumer credit reports on file from... Read More

Maximizing Credit Card Rewards

We spend money every single day on many different types... Read More

Credit Reports ? Why Your Credit Score is Important

If you have never heard of a FICO score before,... Read More

Credit and Loan Help for Mortgage Loans

Mortgage loans are some of the most difficult loans to... Read More

ChexSystems: Alternative Options for People Whove Been Checking Accounts

Individual banks elect to become members of ChexSystems, and to... Read More

What Happens When Your Credit Is Damaged? Do You Have Recourse?

The good thing about bad credit is that you can... Read More

Home Loans ? Repair Your Credit Before You Buy

Before you take out a home loan or make any... Read More

The Ghost of Expected Surprises

Here, Cratchet, what do you think you're doing?Uh, er, leaving... Read More

Fight Credit Card Fraud with Common Sense

By now, you have undoubtedly heard of credit card fraud,... Read More