Debt No More!
Debt advice blog by a debtor and for debtors!
Debt advice blog by a debtor and for debtors!
NEWS & EVENTS
Minimizing bad-debt loss
If you add an interest charge on overdue accounts, customers will be encouraged to pay promptly by this little incentive.
Over the years I have experienced credit losses on various jobs. Please discuss how the estimator should handle bad-debt loss in preparing estimates. Also describe guidelines to help us reduce losses from jobs sold on credit.
Unless care is taken, bad-debt loss will dramatically reduce profits. Bad-debt loss is a burden that should be borne by all customers equitably and should not in any case be paid directly from the printer's profit.
One means of dealing with bad-debt loss is to apply last year's loss percentage against this year's receipts. For example, suppose you discover that three percent of your annual revenue is lost to bad debts. In order to overcome this loss, you must increase your markup. In effect, this means that all customers will share proportionately in the burden.
Let us now look at some of the things that you can do to reduce this loss:
Over the years I have experienced credit losses on various jobs. Please discuss how the estimator should handle bad-debt loss in preparing estimates. Also describe guidelines to help us reduce losses from jobs sold on credit.
Unless care is taken, bad-debt loss will dramatically reduce profits. Bad-debt loss is a burden that should be borne by all customers equitably and should not in any case be paid directly from the printer's profit.
One means of dealing with bad-debt loss is to apply last year's loss percentage against this year's receipts. For example, suppose you discover that three percent of your annual revenue is lost to bad debts. In order to overcome this loss, you must increase your markup. In effect, this means that all customers will share proportionately in the burden.
Let us now look at some of the things that you can do to reduce this loss:
1. Require a 50% deposit on all orders, with the balance to be paid on delivery.
Many printers have learned that this policy can reduce bad-debt loss quite effectively. Customers who must pay 50% up front have commitment to the job and in seeing that it is paid for promptly. If your customer cannot or will not pay the deposit, I suggest you think carefully before taking the order.
2. Screen customers carefully before extending credit.
Some larger companies will only purchase goods on open account and will not put 50% down. In this instance, check their credit references carefully, review their past payment history, and check them out with your local credit agency.
Finally, be sure you know the names and home phone numbers of principals in the organization. This can be valuable later in case of default.
3. Bill all jobs promptly.
Many printers invite credit losses because they are simply much too slow in mailing out bills. You can speed up collections by sending bills with the job.
4. Use the telephone to stimulate collections.
Follow up on slow-paying accounts by phone before they become delinquent or impossible to collect.
5. Insist on cashier's checks.
Do not accept more business on open account from customers who are behind in payments. Require a cash payment or a cashier's check on outstanding invoices and all future work.
6. Use your delivery driver to collect accounts.
When a job is delivered, ask the driver to politely request payment on overdue accounts.
7. Do not be reluctant to use a collection agency when called for.
Collection agencies are more skilled and persistent at collecting past due accounts than you or anyone in your firm may be. Customers often respect demands made by a collection agency because they know that failure to comply will mean a serious blemish on their credit record.
8. Collect interest on overdue accounts.
If you add an interest charge on overdue accounts, customers will be encouraged to pay promptly by this little incentive. Please be advised, however, that no interest should be added unless your customers have been notified to this effect in writing before making the purchase. Many printers have a notice to this effect printed on their standard order forms and invoices.
9. Assign specific individuals in your company the responsibility for collecting overdue bills.
For instance, ask salespeople to assist in collection efforts related to their accounts.
10. Add a percentage for bad debt loss to all jobs and factor in debt management.
This will assure sufficient revenues to recoup all of your losses.
11. Subscribe to a credit rating service and utilize their resources and reports.
Dun and Bradstreet, for example, rates the financial strength and credit standing of organizations and provides data to members for a fee. Do not grant credit to customers with poor credit ratings. It is better to give up the job beforehand than to be out of pocket for labor and materials after the fact.
12. Establish credit limits on an account and enforce them.
For example, you may wish to approve a $500 credit limit for a small business with a good payment record. After several years of a good payment history, you may increase the amount accordingly. Don't assume that a business that has a good credit rating and history can safely be granted unlimited credit.
By careful attention to credit and collection procedures, there should be no problem for you to reduce your bad debt losses. More than one business has gone under-not from its own credit indiscretions-but because of its customers' inability to pay bills. Next month: a list of the cardinal do's and don'ts for estimators to follow to avoid making costly mistakes.
Many printers have learned that this policy can reduce bad-debt loss quite effectively. Customers who must pay 50% up front have commitment to the job and in seeing that it is paid for promptly. If your customer cannot or will not pay the deposit, I suggest you think carefully before taking the order.
2. Screen customers carefully before extending credit.
Some larger companies will only purchase goods on open account and will not put 50% down. In this instance, check their credit references carefully, review their past payment history, and check them out with your local credit agency.
Finally, be sure you know the names and home phone numbers of principals in the organization. This can be valuable later in case of default.
3. Bill all jobs promptly.
Many printers invite credit losses because they are simply much too slow in mailing out bills. You can speed up collections by sending bills with the job.
4. Use the telephone to stimulate collections.
Follow up on slow-paying accounts by phone before they become delinquent or impossible to collect.
5. Insist on cashier's checks.
Do not accept more business on open account from customers who are behind in payments. Require a cash payment or a cashier's check on outstanding invoices and all future work.
6. Use your delivery driver to collect accounts.
When a job is delivered, ask the driver to politely request payment on overdue accounts.
7. Do not be reluctant to use a collection agency when called for.
Collection agencies are more skilled and persistent at collecting past due accounts than you or anyone in your firm may be. Customers often respect demands made by a collection agency because they know that failure to comply will mean a serious blemish on their credit record.
8. Collect interest on overdue accounts.
If you add an interest charge on overdue accounts, customers will be encouraged to pay promptly by this little incentive. Please be advised, however, that no interest should be added unless your customers have been notified to this effect in writing before making the purchase. Many printers have a notice to this effect printed on their standard order forms and invoices.
9. Assign specific individuals in your company the responsibility for collecting overdue bills.
For instance, ask salespeople to assist in collection efforts related to their accounts.
10. Add a percentage for bad debt loss to all jobs and factor in debt management.
This will assure sufficient revenues to recoup all of your losses.
11. Subscribe to a credit rating service and utilize their resources and reports.
Dun and Bradstreet, for example, rates the financial strength and credit standing of organizations and provides data to members for a fee. Do not grant credit to customers with poor credit ratings. It is better to give up the job beforehand than to be out of pocket for labor and materials after the fact.
12. Establish credit limits on an account and enforce them.
For example, you may wish to approve a $500 credit limit for a small business with a good payment record. After several years of a good payment history, you may increase the amount accordingly. Don't assume that a business that has a good credit rating and history can safely be granted unlimited credit.
By careful attention to credit and collection procedures, there should be no problem for you to reduce your bad debt losses. More than one business has gone under-not from its own credit indiscretions-but because of its customers' inability to pay bills. Next month: a list of the cardinal do's and don'ts for estimators to follow to avoid making costly mistakes.
