At the root of any business, the goal is to make a profit. Forget yoga. Cash coming in at the end of the day is crucial to personal wellbeing. What’s stopping you from seeing those positive weeks turn into profitable months is bad credit.
As of 2020, the total US public debt surpassed $20 trillion. That’s a lot of zeros. Which is to say managing credit with customers can be tricky. This goes double if you understand their situation or have seen them hit hard times.
Everyone knows a business that has trouble with past-due bills. The stories of how that debt accrued can be tragic. But remember, B2B credit management isn’t about feelings. It’s a set of rules that can protect you from drowning in defaults.
In the article below, we’ll go over five simple rules that can help you manage customer credit before it turns into bad debt. With our help, you will answer the question that enters most of our clients’ minds: What are the best practices for managing B2B credit?
managing credit: monetaria's 5 rules
- Know Your three p's (practices, procedures, & policies)
You need to have these three Ps in hardcopy. Working with clients every day means you know most of this stuff already. Typing it out and circulating it to your employees, however, changes more than you may think.
Your B2B loan practices, procedures, and policies safeguard you from extending credit to customers that may not be worth the effort. It also helps larger teams support one another in faster credit industries, such as merchant cash advance.
Here are some questions your three Ps should answer:
- What are the credit limits?
- Where are these limits recorded?
- How do we define credit terms?
- What are our nonpayment actions?
- Clearly Define what Creditworthiness Means to You
Look, this isn’t personal or anything, but lots of businesses don’t sit down and think about who they should be giving credit to.
You can have more policies and structures than the IRS. It doesn’t mean anything if your business extends credit to anyone that walks in the door.
Also, we recommend reassessing customers on a routine basis. That way, you can spot the warning signs which can lead to delinquency.
- Build an Authorization Chain
Every customer has their own history with your business. We don’t doubt there are some you’re more willing to give an extension when they default. But have you sat down and planned out who approves extensions?
To do that, you must establish a hierarchy. Everyone should know who signs off and who doesn’t. Authorization chains can help solve the following issues:
- Credit Limit Increases
- Collection Terms and Periods
- Payment Freezes
- Make Updating Creditor Info Second-Nature
We should all be on the same page by now and agree that having a clear credit limit, delivery term, and collection period is vital for every client. But as time goes on, a customer’s situation might change.
Their business might lose monthly income. Or it could be the opposite — they could be doing better. Either way, you must make it a habit to update their information.
Is starting to seem like a lot to keep track of? Try looking into some credit management software. The hassle and expense of getting the program up and running could be worth it in the long run.
- Put a B2B Collections Agency on Speed Dial
With accounts receivable, it pays to have a collections agency you can trust. Once an account turns 60 or 90 days delinquent, you’re better off sending it to the pros. Here are a few reasons why:
Keep it professional: You’re less likely to get emotions involved if you hand delinquencies to the experts.
Recover Assets Faster: Our suite of debt collection tactics means quick recovery.
No Wasted Time: You can focus on clients that pay, and leave the others up to us.
Want Our advice? Read the Beginner’s B2B Debt Recovery Handbook
Defining creditworthiness and keeping customer files updated can keep your credit from turning into bad debt. Just remember that B2B collections aren’t something you master in a weekend. We’ve been in the business for years and we’re still learning.
So if you want more help avoiding bad debt, don’t forget to download our handbook. We’ve packed it with strategies, checklists, and advice that has helped our clients avoid delinquencies.
Get it for free right here.