How to write an effective credit collection policy…

debt recovery services

It doesn’t matter how small or large your business is, it is always important to keep control of your debt collection and ensure that your cash flow is maintained. Without cash flow, your business can become quickly constrained and you will struggle to maintain daily operations not to mention inhibiting your business growth strategies.

That’s why it is important to have a proper credit collection policy established in the early stages of your business so that you never have to face the problems of decreased cash flow.

In order to make this task easier, let’s look at some of the elements of a good credit collection policy.

  • If your business is large enough to have its own credit collection department, the mission statement should include a definition of its purpose as well as its focus on long-range activities. Inevitably, this means that the purpose is to ensure cash flow is maintained within normal credit terms.
  • Irrespective of the size of your credit collection department, even if it is only one staff member, it’s important to have the goals of each phone call and letter clearly stated. It’s important to have key performance indicators that take into account the maximum number of days invoices are left outstanding before formal collection processes begin. The policy should also include checkpoints after which letters of demand and phone calls are made so that bad debt write-off percentages remain low. All these issues need to be specifically addressed in terms of how much debt exposure the business can stand.
  • Large businesses should structure the credit collection department in a manner similar to a bank whereby more experienced staff have the authority to commence legal proceedings, write off debts or to come to arrangements with individual debtors on a case-by-case basis. There should be no doubt as to the responsibilities of each staff member and clearly defined limits under which they are able to negotiate and make decisions.
  • The credit department should also have control over the valuation of credit applications and clearly defined terms under which credit risks are assumed. Once again, individual staff shall be allocated approval limits so that potential customers are assessed according to their risk.
  • One of the best ways to control debtors is to introduce incentives for early repayment of accounts and provide customers with a variety of means to settle their accounts, including direct deposits, credit cards as well as cheque or Internet transfer options.
  • A clear plan of action should be in place for every account which is overdue. Careful monitoring of these accounts becomes one of the most vital functions of any credit collection department because every dollar unpaid nibbles away at cash flow, which is vital to the existence of any business.

Although these points are not meant to be an exhaustive list, it provides a starting point for the writing of an effective credit collection policy and may a sufficient to avoid having to use the services of a debt recovery agency to keep debtors under control.

Professional Debt Recovery for you …contact

Debt Recovery Associates. Persuasive, Persistence, Professionalism

Town Office-View Park Towers ,10th Fl ,Utalii Lane /
L584-off UN Avenue, Gigiri.

P O Box 27859 00100 Nairobi, Kenya

Tel +254-20-221 1382/362

Cell: +254 712 636 404

Fax +254-20-2211386


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