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Credit Worthiness

04/09/09

Credit Worthiness

  02:40:58 pm, Categories: economy , Tags: business credit, credit worthiness

Credit Worthiness

During economic hard times, it’s time to get back to basics. Look at the things you did when you were growing your business and do them again, but more efficiently. When you study business history, many of the most successful business were started in hard economic times and the owner did the things that made it possible to grow then and also be prepared for better times later. Several things to consider in your business is cutting costs, improving efficiency, generating new business and monitoring credit worthiness of your customers.

Today let’s discuss the credit worthiness issues. This single thing may be the deciding factor on whether your business survives and prospers or does not. If one of your customers goes bankrupt and you are left with some outstanding debt, can you continue? What can you do to try to avoid this?

First review (or create) your company’s credit policy, considering the following:

  • How is a new customer approved for credit?
  • Are they required to fill out a credit application?
  • Are references checked prior to issuing credit?
  • Who can approve credit?
  • Are credit limits set and enforced?
  • What are your terms?
  • Do you charge interest or late fees?
  • What are the consequences of late payments?
  • What are your collection policies?

Once you have determined your credit policy, include this policy in any contract or acceptance letter you send to your customer. Your customer needs to know your policy prior to doing business with you.

Monitor your accounts receivable (by customer) regularly. Compare their outstanding debt now with a month or a year earlier. If a customer is getting behind on payments, contact them immediately and try to resolve the issue. If you do not get this resolved, follow through on your credit policies for late payments. You cannot afford a "wait and see" attitude hoping your customer will come around.

Establish a method to monitor the financial information of your customers. Read trade journals, talk to other companies, network and use credit monitoring services to keep track of the credit worthiness of your customers. Remember if you are averaging 5% net after expenses, one load that is not paid, means the next 20 loads are ‘not for profit’ loads. You can’t be too careful. Your business depends on credit, but you must continuously monitor all your credit accounts.

Craig Sorensen
TruckMaster Solution Provider
TruckMaster Your Trucking Company

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