No shortage of policies in any finance department. But there’s one that needs a second look ASAP.
The policy in need of attention: your credit one. The most common frequency to revisit that key document is annually – 38% of your peers say that’s how often they update or revise their credit practices, according to the National Association of Credit Management (NACM).
But think about how much could happen in a year … or even a quarter. Customers that were reliable prompt payers may have started paying slower and slower or stopped paying all together. You might even have gotten burned by a bankruptcy filing.
In these unstable economic times no company can afford to take its eye off this potential major financial exposure. Here’s what you need to know.
First, a little benchmarking. When asked “About how often does your company update or revise its credit policy?” here’s what your peers told the NACM this month:
- Monthly: 0.95%
- Quarterly: 2.23%
- Every six months : 2.70%
- Annually: 38.16%
- Less than once a year: 19.71%
- Never: 8.59%
- We don’t have a credit policy: 5.09%
- Other: 22.58%.
Unless you’re in that less than 1% tha’s looking at your credit policy on a monthly basis, you probably want to up your frequency – at least for the time being.
Updating with relative ease
Here’s how to make this task a more regular habit:
- Tap staffers’ intel. Your finance folks are on the front lines and are in the best position to spot potentially troublesome trends. Be sure to give them a voice when deciding when/how to tweak your credit policies. They’re also the best people to help you determine how to present new changes, like late fees. They talk to customers every day and know what type of appeal will work best.
- Communicate early. Sales is going to be impacted by credit policy changes, you might as well get them involved (to an extent) early. You certainly can’t let Sales set your policies (that probably wouldn’t be in the best interests of risk management), but there’ll be less bad blood if you at least alert Sales to upcoming policy changes.
- Tread carefully. While your company is certainly entitled to put new safeguards in place to keep your risk low, be careful: Your company must apply your credit policy evenly to all customers. No putting restrictions on some but not others (unless some pay you and some don’t). Otherwise you could run afoul of antitrust laws.
Staffers in or outside balk they can’t afford to divert the time from other responsibilities? Explain how your company can’t afford to have a once-solid customer stop paying or go bankrupt.