Ten commandments of credit (part 2)

As what I have said last week, July is often the most challenging month for any Credit and Collection manager. This is the month where management would like to have a heads up report of the overall picture of the current, delinquent and defaulted accounts.          Usually, management will come up with all sorts of statistics and analysis towards the breakdown of these accounts. If the Accounts Receivables is healthy, meaning the defaults are still within the company projection, the Sales and Credit and Collection group will be commended.

However, if the Accounts Receivables are already out of control, it is obvious that something is wrong. If the defaults are becoming a clear problem, the good news is that there is more time to collect, but the most basic thing to do is at least going back to basic in granting credit to mitigate future exposure.

The following, are the continuation of the “Ten C’s or Commandments of Credit” which are a basic guideline for all Credit and Collection executives.

Sixth. As much as possible, do not be COMPLACENT. Complacency is means being contented or satisfied with one’s lot. I have come across with a good collection policy that reads something like this: “always do something every 20 days”. Update your records, call up trade suppliers, ask your colleagues or do ocular checking. This is also a good policy in controlling receivables.

Seventh. Do not be CARELESS.       Always make the habit of double checking, re-checking, most especially if it involves collateral and references. Many credit practitioners unfortunately are trapped in the habit of taking something at “face value”. I always instruct my collectors to call back references for a quick update on previously given information, to re-check collateral if it has “liens and encumbrances”, and most especially bank checking among others.

Eight. Always COMMUNICATE as clearly as simply as much as possible.  Writing collection, demand or reminder letters are not just having correct grammar and coherent sentences. Be sure that you are conveying your message very clear. Use simple phases, and avoid lengthy sentences. Avoid using “jargons” that only you and your company can and may understand.

Ninth. Never forget to prepare for CONTINGENCIES.  Contingency is defined as dependence on chance; uncertainly; occurrence incidental to another occurrence. Check if the subject of credit and/or collateral is insured such as insurance against fire, calamity or even life. If there is none, you can suggest that it is wise to insure, to be protected in any event. Check if subject has other businesses and is not dependent on one business alone.

Tenth.  Don’t be swept away by COMPETITION. This is the most common and serious of them all, being swept away by competition. In our present economic set-up, competition plays a vital role in credit approval. The sales group will always demand that the account be approved immediately or lose the market and/or the account to the competitor, the tendency now is to shortcut the credit process and to bend some rules within your credit and collection policies. However, your judgment here will mean profit or unnecessary risk (or loss) to your company, either for today or in the near future.

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