EXTENDING CREDIT

Businesses like yours know that one of the best ways to attract and retain customers is to extend credit. Offering credit allows you to increase your gross sales. But you also place yourself in a position to incur losses due to nonpayment. We want to help you find ways to improve controls on the credit you extend.

In most businesses, the write-off or charge-off rate runs from one-half to five percent on sales and services. How can you keep write-off rates to a minimum? Here are some simple solutions:

Clear understanding of terms when a credit transaction is initiated
This is the solution that is most often neglected, resulting in problems that are difficult and costly to overcome. Make sure payment terms are understood up front. If a problem arises, correct it quickly.

Systematic and diligent follow-up of every account
As the creditor, you must control communication with your debtors. Call them or personally visit each past due account. Written communication is most effective when brief and aimed at a single purpose.

Periodic age analysis of every outstanding account
Create and use a simple, inexpensive form listing the name, amount owed and age of account (30 days, 60 days, 90 days, over 90 days). This will help you track your collection progress.

You don't have to accept excessive losses as part of doing business! When the charge-off rate exceeds 5%, take action to improve your control over bad debt losses!