TL;DR: A credit policy is the cornerstone of a good accounts receivable management process. Creating one isn’t always easy, though. It takes time, thought, and effort to devise a truly effective credit policy. And it’ll take a while longer to implement it within your company.
It doesn’t need to be difficult, however. If you’ve been intimidated by the thought of creating or revising your company’s credit policy, follow along with these steps. You’ll have an effective policy in place in no time.
Lay Down the Law – Define Approval Criteria and Credit Limits
What are the rules for new customer account creation? How do you decide who gets approved and who doesn’t? How do you set credit limits on customers’ accounts?
All of these questions must be addressed in the policy itself. The policy acts as a guide for your accounts receivable team when they review customer applications. If your guidelines aren’t specific, you’ll end up with accounts you perhaps shouldn’t have approved.
Your credit policy should also address issues like raising credit limits, assessing bad debt, and sending accounts to collections. Finally, the policy should include instructions for setting up new accounts and for using automatic or online billing systems.
Talk Time – Clarify Communication Standards and Messaging
Your credit policy also needs to cover communication. When do you send out reminders about overdue accounts? What do those messages say? How do you communicate with a customer whose account application has been denied?
The credit policy should outline appropriate communication with customers from the time they apply for accounts to sending those accounts to collections. Providing template messages for different situations will help your team manage accounts receivable more effectively and efficiently, while keeping everyone on brand.
The Team – Identify Roles and Responsibilities
The credit policy should also make provisions for the team that manages accounts receivable. It doesn’t need to name each individual employee. If it did, you’d have to revise the policy each and every time someone was hired. Instead, the policy should discuss the positions of team members and their roles in the process.
If you’ve outsourced accounts receivable management, your provider needs a copy of the credit policy, so its representatives can implement and enforce it. The policy might also reflect your service-level agreement in terms of designating members of the team.
Implementation – Roll Out Your Credit Policy Successfully
Implementing the credit policy is another matter. Once you’ve developed it, how do you roll it out?
If you’re working with an outsourcer, be sure to send over a copy of the policy and ensure the outsourcer agrees with the policies. If possible, you should work with your provider when drafting or revising the policy. Outsourcers have valuable insights to share!
If your accounts receivable management is still partially or wholly in-house, then you’ll need to introduce the credit policy to your team. Creating a seminar or workshop to talk about the new policy is a great first step. Be sure each team member receives a copy of the policy so they can refer to it. You should also have a clear chain of command for questions when they arise. Someone needs to be the expert.
Other employees from other departments also need to be aware of the credit policy. You don’t want the sales department making promises to potential customers if you can’t keep them. If sales isn’t aware of the policy or changes to it, you could run into trouble.
Finally, you need to tell your customers. Marketing can identify who this impacts. For existing customers, you may send an email or a letter advising them of changes. If you’re looking to target new customers, marketing should devise a campaign designed to attract their attention.
Easy and Effective – Monitor Performance and Improve Continuously
Once your policy has been rolled out, you can monitor how effective it is. If you’ve followed the steps to create and implement an effective credit policy, you should have clear sailing ahead.
