The Credit Research Foundation estimates that only 20% of credit departments have formalized
policies and according to Credit Today, more than half of businesses who actually have a credit and collections policy fail to update it frequently enough for it to be effective!
The study from Credit Today revealed the following:
- 19% said they update their manual every two years
- 13% said every 3 years
- 15% reported they only change their when they need to
- 12% said “other” which really makes you wonder then the last time they updated theirs was…
Which companies are the worst offenders and why is this problem?SMB enterprises are among the worst offenders when it comes to neglecting their credit and collections policy manuals because they are generally without the resources and time to take care of this step. It’s a vicious circle though, because these SMB companies are the ones who should be most focused on building a strong policy to optimize their accounts receivable processes.
Taking the time to update your credit policy needs to happen once a year and while you may be busy, start setting aside that time because an up-to-date collections policy can be serve as:
- A document that will ensure continuity in the department in the event that key personnel leave the credit department.
- A document that will help ensure all customers will be treated fairly.
- a Document that will ensure consistent credit decisions are being made.
- An important training tool for new sales associates and new additions to the credit and collections team.
- a Doucment that will make sure there is consistency in both procedure and execution between the credit department, sales, and management.
If you are running short on time to either create or update your collections policy, keep the following in mind:
- work on one section at a time so you are not overwhelmed
- Begin with a broad policy and narrow it down as you go. You can add details, new sections, and make changes over time.
- Stick to your update schedule and/or make the necessary changes immediately after they happen so your AR credit collections manual stays up to date.
- Do not write a policy so restrictive that employees are afraid to make decisions for fear of going against policy.
- Standard best practices state you should update at least once every other year.
- Store your policy manual in a place where everyone can see it (not edit it). Those way sales associates can quickly and easily access the document to review the content.
What makes a collections policy an effective one? What should be included? How detailed do you need to get? All of these questions and more are answeres in this white paper, “6 Steps to Developing a World Class Credit & Collections Policy and Action Plan.”