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MONEY TALK • Run a thorough credit check on every prospective new client—including a busi- ness history, a background check, and individual credit reports for the owner to insure that the company and the owners as individuals are credit worthy. • Require at least three credible trade credit references. References from utili- ties, credit card companies, equipment suppliers or other lenders are not enough. These are entities that generally get paid on time. Check to see how the pro- spective client is paying suppliers who are representative of unsecured creditors. What amounts of credit they have been extended by those lenders? How much business they have done with the credi- tor? If this information doesn't match the potential credit exposure you are under- taking, ask for other more representative credit references. • Research bank references to determine if the client has an active credit line and maintains adequate cash balances. • Require a credit card account as a pay- ment backup when dealing with poten- tially marginal credit and get a signed authorization form, consenting to allow you to charge the credit card account if the invoice remains unpaid beyond set terms. This avoids customers disputing charges and avoids disputes with the credit card issuer. It is also advisable to check with the credit card issuer to deter- mine remaining credit availability on the account. • At a minimum, ask for an advance cash deposit to cover your initial costs from new clients with an unclear or mar- ginal credit history; and consider collect- ing progress payments to cover materials or other costs during the production of the job. Prudent collection practices can make a big difference, and integrating good practices into your routine will help you get there. By Stuart Margolis are reluctant to call too soon, but after all, these are the terms that your customer agreed to. • Call your client's Accounts Receivable Department 10 days after the invoice is mailed to confirm receipt of the invoice and ensure that the packing list and all the paperwork they need to pay the invoice has been received. One early, proactive phone call can avoid a pay- ment delay at the due date because the client is missing some critical informa- tion. Some companies that employed this strategy have reduced the average time their receivables are outstanding by 15 to 25 days. • Remind your salespeople regularly to relay comments they hear when dealing with their clients that may indicate cause for concern. While on-site at customer locations, information can be gathered. If credit risk is suspected, remind the sales staff to report it. Remind them who signs their paycheck and who they need to protect. Implement Collection Actions When a client becomes a serious collec- tion problem, follow your instincts on a case by case basis. • Call the key manager, president or owner of the delinquent account and have a discussion. If he or she doesn't return your call, or provides questionable information, follow up your phone call immediately with a payment demand letter. • Engage a collection agency. Do not hesitate to do this.You are better off col- lecting 66 to 75 percent of the receivable after paying the agency than handling the collection ineffectively on an internal basis. • Do not allow a collection account to dictate a longer payment cycle (45 or 60 days). Instead, advise them that if they want an extended payment cycle they must agree to an auto-debit elec- tronic payment program. This effectively thwarts the "check is in the mail" or "we are paying you next week" responses First of all, understand your credit risk: Collection Practices Can Make a Difference • Start small when accepting jobs from new clients with potentially questionable credit. An initial small job experience may lead to other beneficial work if the credit risk is good. After the relationship has developed, consider extending terms on a trial basis. Maintain Good Credit Collections Once you've granted a credit limit to a client and agreed to do business with them under credit terms, here are some tips for moving forward: • Set up reasonable but very conserva- tive credit terms using your MIS system to alert the owner, the CFO or the book- keeper when a new order is going to put a client over their credit limit. For example, if you set a $10,000 credit limit and the account has an $8,000 outstanding bal- ance, with a new order totaling $4,000, someone is alerted to review the cus- tomer's receivables and see why they are exceeding their limit. Are they at 60 days? Did they place a large number of orders in a short time period? You can make a decision about how to proceed before the new $4,000 job becomes an account with a $12,000 receivable. You will have justifiable reasoning to adjust credit limits up or down, depending on each client's payment history. • Review your AR aging report each week. Be sure that collection activity based on established collection policies is being pursued where clients are beyond terms; and look at your client's credit limits to see if those limits need to be curtailed or increased. • When collecting receivables, place an initial call to the client on the day that payment is due based on your payment terms with that client. 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