Credit and collection policies

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  • Start by introducing you name, title, Center/IBSP (using NYC Business Solutions branding). NYC Business Solutions Center, share your Center address and state that you help all entrepreneurs and operating businesses in borough . IBSP, share your address and state that you have an expertise in providing services to industrial and manufacturing businesses.
  • Information is your friend. Ask specific questions about their business (i.e. industry, what do they sell, who do they do business with, how long have they been in business, locations. Ask for a credit check, banking information and two trade references. Verify those references and keep notes in the credit file. Ask for a personal guarantee if the company is unknown or a startup. KNOW YOUR CLIENT WELL. Ask questions, make sure your client’s pay cycle will enable you to get paid and operate profitably. Develop a relationship with the accounts payable person who processes payment on your invoices. The more information you know about your client, the better your chances of collecting your past due receivables.
  • Information in your client’s credit file is essential and should be updated annually. These are key documentation which should be part of the client’s credit file. The signed written agreement memorializes the terms and conditions of your agreement with your client. Credit applications give you information regarding assets like bank accounts, trade references, and other assets. Updated statement of accounts are necessary in order to maintain a detailed accounting Copies of all invoices that corresponds to the statement of accounts -- The documents along with the statement of account will be needed if you end up litigating. Keep copies of payments made by your client. If the name on the check does not match the name on the signed agreement and the statement of account, call your client and find out why you are getting a third party check and who they are. Sometimes, the client change names or ownership. If this is the case, you will need to get a new written agreement, credit application and corresponding information. Copies of the payments give you banking information. It is important that this be kept up to date. Keep copies of disputes and/or incidents from your client and your response as well. Keep a record of what was done to resolve it. Keep a copy of the client’s business card. Sometimes, the corporate name is different than the business name. (DBA) Notes and news -- it is important to keep track of your client’s whereabouts. New locations, new products, new ventures, mergers, etc. You also need to keep copies of corporate records, business name filings, bankruptcy filings, court judgments and tax liens. Keep a copy of the personal guarantee as well as all the personal financial information. Confirm Tax Id and social security numbers. Trade references are important as these are the people your client does business with. Verify the references and keep notes. Get credit reports on your client. You don’t want to have a client who has a poor payment history. Finally, a list of authorized personnel who can request your services and pay your invoices.
  • Information in your client’s credit file is essential and should be updated annually. These are key documentation which should be part of the client’s credit file. The signed written agreement memorializes the terms and conditions of your agreement with your client. Credit applications give you information regarding assets like bank accounts, trade references, and other assets. Updated statement of accounts are necessary in order to maintain a detailed accounting Copies of all invoices that corresponds to the statement of accounts -- The documents along with the statement of account will be needed if you end up litigating. Keep copies of payments made by your client. If the name on the check does not match the name on the signed agreement and the statement of account, call your client and find out why you are getting a third party check and who they are. Sometimes, the client change names or ownership. If this is the case, you will need to get a new written agreement, credit application and corresponding information. Copies of the payments give you banking information. It is important that this be kept up to date. Keep copies of disputes and/or incidents from your client and your response as well. Keep a record of what was done to resolve it. Keep a copy of the client’s business card. Sometimes, the corporate name is different than the business name. (DBA) Notes and news -- it is important to keep track of your client’s whereabouts. New locations, new products, new ventures, mergers, etc. You also need to keep copies of corporate records, business name filings, bankruptcy filings, court judgments and tax liens. Keep a copy of the personal guarantee as well as all the personal financial information. Confirm Tax Id and social security numbers. Trade references are important as these are the people your client does business with. Verify the references and keep notes. Get credit reports on your client. You don’t want to have a client who has a poor payment history. Finally, a list of authorized personnel who can request your services and pay your invoices.
  • Information in your client’s credit file is essential and should be updated annually. These are key documentation which should be part of the client’s credit file. The signed written agreement memorializes the terms and conditions of your agreement with your client. Credit applications give you information regarding assets like bank accounts, trade references, and other assets. Updated statement of accounts are necessary in order to maintain a detailed accounting Copies of all invoices that corresponds to the statement of accounts -- The documents along with the statement of account will be needed if you end up litigating. Keep copies of payments made by your client. If the name on the check does not match the name on the signed agreement and the statement of account, call your client and find out why you are getting a third party check and who they are. Sometimes, the client change names or ownership. If this is the case, you will need to get a new written agreement, credit application and corresponding information. Copies of the payments give you banking information. It is important that this be kept up to date. Keep copies of disputes and/or incidents from your client and your response as well. Keep a record of what was done to resolve it. Keep a copy of the client’s business card. Sometimes, the corporate name is different than the business name. (DBA) Notes and news -- it is important to keep track of your client’s whereabouts. New locations, new products, new ventures, mergers, etc. You also need to keep copies of corporate records, business name filings, bankruptcy filings, court judgments and tax liens. Keep a copy of the personal guarantee as well as all the personal financial information. Confirm Tax Id and social security numbers. Trade references are important as these are the people your client does business with. Verify the references and keep notes. Get credit reports on your client. You don’t want to have a client who has a poor payment history. Finally, a list of authorized personnel who can request your services and pay your invoices.
  • For those of you would like a sample personal guarantee, please email either Jackie or myself and we will forward one to you.
  • If your potential client has a history of bouncing checks, don’t expect them to change because they are doing business with you. Make sure you lay down the credit rules. Start the relationship slow. Keep the amount of services to a minimum until you feel comfortable that they will continue to pay on time. Most importantly is not to do business without having signed contracts with clear payment terms.
  • If your potential client has a history of bouncing checks, don’t expect them to change because they are doing business with you. Make sure you lay down the credit rules. Start the relationship slow. Keep the amount of services to a minimum until you feel comfortable that they will continue to pay on time. Most importantly is not to do business without having signed contracts with clear payment terms.
  • If your potential client has a history of bouncing checks, don’t expect them to change because they are doing business with you. Make sure you lay down the credit rules. Start the relationship slow. Keep the amount of services to a minimum until you feel comfortable that they will continue to pay on time. Most importantly is not to do business without having signed contracts with clear payment terms.
  • Remember that there is no greater priority than collecting the money due to you. The only good clients are the ones who pay their bills on time. Long standing customers are important to your business, especially those who have always paid on time. As soon as you a good standing account becomes delinquent, get on the phone and find out what happened. If they are having problems offer assistance if appropriate. A COLLECTION CALL IS MORE EFFECTIVE THAN WRITING OR EMAILING. The person who set up the account needs to call. Do not delegate the task to a collector or receptionist. It is important that those bringing in the business or owner gets involved in this process. There needs to be a connection between your company and your client. Sometimes it is better to contact the client and make arrangements than to proceed with collections.
  • The process of collecting money can be handled in a variety of ways without alienating the client. You must come to grips with the fact that you are entitled to be paid for your services. If the tables were turned, your client would want to be paid. What are your terms of sale? Has your client responded to your requests for payment? Have you been in contact with the accounts payable person or your buyer? Always maintain contact with your client. Long-time clients may have always paid on time but suddenly is paying late. Call to find out why and see how you can help them to make payments. Enforce the credit policies you have established. Do not let your emotions take over. You must get paid to continue to operate profitably.
  • Credit and collection policies

    1. 1. Protect Your Bottom Line:Effective Strategies for Getting Paid Presented by: Jocelyn Ruth Nager, Esquire Jackelyn Florez, CLA Frank Frank Goldstein & Nager, PC 1430 Broadway Suite 1615 New York, New York 10018 Tel 212-686-0100 Fax 212-686-6726 www.ffgnesqs.com A Certified Woman-owned Business
    2. 2. Collection TrendsSource: Commercial Collection Agency Association 100% 94.9% 90% 89.9% 81.3% 80% 69.6% 70% 60% 52.1% 50% 39.1% 40% 30% 22.8% 20% 9.3% 10% 0% Due Date 30 Days 60 Days 90 Days Six Nine One Year Two Months Months YearsThis chart illustrates the decrease in collectability over time.As time passes, the probability of collection decreases.
    3. 3. Impact of Bad Debt Write-off on SalesYour And YourWrite off Net Profit is 2% 3% 4% 5% 6% You will need the following amount of additional sales to offset the loss $5,000 $250,000 $166,666 $125,000 $100,000 $83,333 $10,000 $500,,000 $333,333 $250,000 $200,000 $166,666 $25,000 $1,250,000 $833,333 $625,000 $500,000 $416,666 $50,000 $2,500,000 $1,666,666 $1,250,000 $1,000.000 $833,333
    4. 4. Interview Your Client• Take time and get to know your client’s business• Who buys your client’s services?• Check references • Trade References • Bank References• Know your client’s pay cycle• Establish a rapport with the accounts payable person who will process your invoice
    5. 5. Client’s Credit File• Signed written agreements with clear payment terms, conditions, indemnification, and credit and collection policies. Also, a copy of a credit application if you wish to use one. Credit applications should be renewed every 2-3 years• Updated Statement of Account – make sure it matches the name on the contract• Copies of all invoices that correspond to the statement of account (make sure the name on the invoices match the statement of account as well as the name of the company on the contract)• Copies of payments made by client (banking information/verification)
    6. 6. Client’s Credit File (continued)• Copies of correspondence received from the client or to the customer. This should include disputes or incidents reported by the client as well as your response to them• Copy of client’s business card• Notes, news regarding new business locations or ventures— news items—negative or positive regarding your customer• Copies of corporate records, business name filings, bankruptcy filings, court judgments and tax liens
    7. 7. Client’s Credit File (continued)• Copy of personal guarantees, if any• Tax ID numbers, Social Security numbers• Trade References—verification and notes• Credit Report• List of authorized personnel
    8. 8. Personal Guarantee• The personal guarantee will insure that if the corporation should go out of business you can pursue the individual for the corporate debt• The personal guarantee should be on a separate page from the contract or credit application• The individual should sign in a personal capacity not as a corporate officer. It is important that no title is listed for the individual. If the individual signs and indicates his title by his name, he is signing as a corporate officer and not individually. Have the client sign the guarantee again without the title. All documents should be dated• You must also obtain the individual’s social security number, addresses, and personal banking information
    9. 9. Handling Clients with Bad Credit or No Credit• Don’t expect a business with a history of bouncing checks or paying their bills late to change when dealing with your company• If you must do business with the chronically late, lay down your credit rules early and firmly. Start the relationship slow• Keep the amount of services to a minimum until they have proven themselves• Do not do business without having signed contracts clearly stating and agreeing to the payment terms
    10. 10. Document Retention and Red Flags• Copies of Checks – Look out for changes in the companyname on the check. Is it different than the client nameyou have? If so, call the client and inquire why? Thiscould be a red flag of financial difficulty. By keeping acopy of the payments, it provides banking information andalso helps you spot trouble before it gets out of hand• Credit Application – make sure to verify the informationgiven. Many times, certain information is falsified. (i.e.social security numbers, trade names, tax id numbers andcorporation information
    11. 11. Document Retention and Red Flags (continued)• Obtain a credit report on new clients prior to doing work. It shows historical payment data, bankruptcy records,lawsuits, liens and court judgments and a risk rating thatpredicts how like a client is to pay its bills. It also revealsrelevant data including fictitious business name filings andtax liens• The idea is to get as much information about yourclient’s assets and business relationships upfront• Get a personal guarantee whenever possible—especiallyif the company is a startup
    12. 12. Strategies for Collecting Your Receivables• A good client is a paying client. Anything else is a hallucination• Don’t be afraid• Act quickly—Call, call, call• The owner or financial person should call• By offering an extension or a payment plan, it maintains your good relationship and keeps your reputation intact• Payment delays can be avoided by developing a rapport with the client
    13. 13. When To Consider AdditionalHelp• You must get paid• The invoice has aged 60 days• Broken promises• Partial payment• No response• Move forward, do not delay
    14. 14. Preventive Measures• Obtain information • Develop a relationship with someone in the• Keep an updated accounts payable credit file on all your department clients • Consider calling on days• Monitor accounts 20-28 before invoice is receivable carefully due to make sure all documentation received• Establish a credit by Accounts Payable policy• Contact your client for non-payment
    15. 15. Case Study #1• Existing client has strict credit policies in place• Requires fully completed credit application as well as a personal guarantee• Pursues with suit quickly for full amount owed plus costs of collection/litigation, interest and attorney’s fees as specified clearly in their credit application• Successfully collects its receivables. Very few go to litigation.
    16. 16. Case Study #2• Existing Client maintains proper credit file with all documents substantiating any balances owed• A claim was submitted for litigation• Documentation provided to defendants and demand made for full amount or suit• Claim was paid in full within 60 days
    17. 17. Collection Options  Collection Agency  Collection Law Firm (Legal Action)
    18. 18. Collection Process Claim is forwarded to attorney for collection. Acknowledgment is sent to the client and demand in writing and by phone Debtor will either make payment arrangements, dispute or ignore Ask for disputes in writing
    19. 19. Collection Process (continued) Debtor’s dispute is sent to the client with attorney’s recommendations Suit or no suit—based on severity of the allegations  Client’s decision to sue or write-off If no dispute, recommendations made based on the collectability to sue or write-off
    20. 20. Legal Process Suit is recommended if not disputed, costs (advanced only), fee contingent upon collection. If disputed, small non- contingent retainer plus costs and the balance of the contingency fee Costs received – Summons and Complaint prepared and filed with Court Defendant served with papers If an answer is filed by the defendant, discovery period begins and we await trial date
    21. 21. Legal Process (continued) If there is a counterclaim, then an hourly fee is charged to handle if client wishes to have representation If no answer, petition submitted to Court for entry of default judgment Judgment Post Judgment Collections  Property or income execution  Bank subpoenas with restraining notices to freeze bank accounts  Sell commercial property  Restrain monies due from third parties
    22. 22. Costs of Litigation  Out of pocket expenditures  FilingFees  Service Fees  Motion Fees  Execution Fees  Marshal Fees  Time  Expectations
    23. 23. Conclusions Your receivables are the lifeblood of your business, protect them by taking these steps and following through with your credit and collection policies. It is a smart business practice to maintain a credit file on your clients, monitor your accounts closely, and take necessary action when problems arise. When you are unsure of what to do, seek professional help.

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