Establish an effective credit policy
A uniform credit policy can speed collections, save time, simplify management and improve your chances to win sales. Employees should know the policy and be able to communicate it to customers. However, one person ought to have responsibility for deciding about exceptions in special cases.
Your policy should reflect the standard in your industry and the nature of your business. Try also to minimize the administrative cost of tracking payments and making collections. The simpler your system, the easier it is to manage.
Establishing a credit policy involves decisions about credit terms and managing receivables. Answer the nine questions below to create a standardized policy for your business. QuickBooks will save your choices and allow you to make revisions to the policy. When you're done, you can print the policy for easy reference by employees or customers.
Create Your Credit Policy
Business Name:
To whom do you want to offer credit? You might choose to reward your best customers with credit offers, or instead make offering credit a regular part of doing business.
We offer credit to:
all customers
large orders or accounts of $ or more
those who purchase at least
time(s) a
longstanding customers of
or more
other
We verify creditworthiness by:
ordering a credit report
checking references
other
How much credit will you offer? It's wise to set some limits. You can start with a small line of credit and encourage customers to earn higher limits with timely payments. You may also wish to limit credit availability based on additional criteria.
The maximum amount of credit we offer is:
$
no maximum
other
This credit limit may be reduced if the customer has:
a poor credit rating
an unreliable payment history with us
one or more past due bills
other
What terms will you offer? A strict credit policy could turn away potential customers, but one that is too liberal may attract slow and non-paying customers. Aim for a happy medium on par with what's common in your industry.
We offer credit terms of:
deposit with balance due upon delivery
deposit with periodic progress payments
Net
COD - cash on delivery
other
Will you encourage early payment? Incentives can help you get paid faster. However, tracking early payments takes additional time, and offering discounts takes a bite out of the bottom line. You need to determine which is the greater loss - waiting for slow payment, or offering discounts. Knowing your average collection period may help you decide.
We offer these incentives for early payment:
% discount for payment within
days
higher credit limits for customers who pay bills early
send thank-you notes to customers who pay on time
other
What are the consequences for late payment, and when do they go into effect? Uncollected bills tie up cash you've been counting on, making it more difficult to meet your own obligations. You should be compensated for the trouble and cost of waiting for slow payers. This is the rationale behind late fees and finance charges. There are legal limits for fees like these; if you assess them, know what your state allows.
Late payment results in:
late fees of $
finance charges of %
reduced credit limits
revocation of credit privileges
other
What steps will you take if a bill is past due, and when will you take them? The information and sample collection policy in collect overdue bills can help you make decisions about this.
When bills are past due by:
we,
we,
we,
other
If a customer cancels an order mid-job, how will you bill for it? How will you handle requests for refunds, or non-payment for unsatisfactory service?
We handle cancellations and refunds as follows:
billed in full
billed proportional to work completed
refunds within
of
satisfaction guaranteed or your money back
other
You can add up to 5 lines of additional notes about your credit policy here.
Notes:
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