Every credit department needs standards for setting credit and payment terms, and for what happens when payments arrive late.
These policies are risk management tools and protect the company from customers that don’t pay on time or not at all.
Appropriate policies should adhere to a company’s mission and goals, and address how credit will be evaluated, the terms, and the collections process if a customer is delinquent.
“Our terms are 21 days, and we start collecting at 28 days,” says Cathy Jimenez, credit manager at Del Campo Supreme, Inc. BB #:163269 in Nogales, AZ.
All credit policies should be posted, available in writing, and include, at minimum, how to execute the following steps: (1) decide which customers will get credit and how much; (2) establish invoicing and payment terms; (3) determine when to start collections for delinquency; and (4) identify the processes that will be used to deal with slow pay or no pay customers.
Other factors to consider when devising a credit policy include company size, cash flow, and general economic conditions.
“With our professional and strategic approach to risk management, Del Campo continues with impressive growth. We reduce bad debt by collecting in a timely manner, which stimulates our cash flow,” explains Jimenez.
In the end, a solid credit policy should reduce bad debt and write-offs and lead to a boost in profits. But this shouldn’t be a one-and-done occurrence—the policy should be reviewed at least once a year and changed according to current risk tolerances and other industry factors.
This is an excerpt from the Credit & Finance Department in the November/December 2021 issue of Produce Blueprints Magazine. Click here to read the whole issue.
