Credit & Collections

by Betsy Rosenberg Are credit and collections essential to running a profitable business? The answer is definitely YES! Would a major department store allow you to charge a purchase without checking your credit? Of course not. Why would you want to provide service or replace a system without getting paid for what your company has spent on labor, materials, equipment, and overhead? During the 16 years that Lee, my husband and business partner, and I ran a successful business, I always felt that if we gave the customer the best possible service, we should get paid for it. For many years, our write-offs were negligible because I was extremely conscientious about extending credit, primarily to commercial customers, and about keeping a close eye on our receivables aging. Before extending credit to new customers, we asked them to fill out and sign a credit application, which detailed our payment terms and requested three credit references. However, I learned a long time ago how some companies pay certain vendors on time to receive a favorable credit rating, while stringing others along with slow payments. For this reason, I’ve never relied solely on credit references. For more reliable credit information, I began using an on-line credit agency. Not only was the company’s information accurate and up-to-date, but it offered an alert warning of accounts with potential credit problems. When it came to extending a customer’s credit, I had a strict policy that I was the only person in our company with the authority to do so. If I was unavailable for any reason, I gave the service department the authority to extend $200 in credit with a signed credit application. This usually worked fine. For those customers with less-than -favorable credit histories, I gave them a very small credit line and watched their payment history closely or simply kept them on C.O.D. Every two weeks, I ran an updated accounts receivable aging and made sure that all of the payments we had received had been posted. I then looked for any service account 30 days past due and any construction jobs past the 10th of the month. I immediately made calls to find out when payment could be expected. If payment wasn’t received by the promise date, I continued to call until it was received. Making these calls on a regular basis helped develop a good relationship with the customers and reinforced how I expected payment in a timely manner. My first call was friendly and the next was firmer. I also strongly believed that it was important to keep the sales people out of the collections process and use them only as a last resort. In addition to the calls, I would send a friendly past due letter and later, if necessary, a letter stating that if payment wasn’t made immediately, they would be turned over to our attorney for collection. Our policy was equally firm for returned checks. In our area, the local district attorney’s office will attempt to collect funds on a returned check. I first called customers, then sent a scare letter that I would turn them over to the DA’s office if I didn’t receive within 10 days from the date on my letter the check amount plus a $25 returned check fee in cash or a cashiers check. As a last resort, I sent the check to the DA’s office, which was almost always successful in collecting for me. Check with your local city officials to see if this service is offered in your area. Persistence is the key to successful collections. I never found a collection agency that did a good job for me. Although I would turn over accounts as a last resort, I made every effort to collect the accounts myself. Make sure that you familiarize yourself with the lien laws in your state. If I had trouble collecting on a construction job, I sent a “right-to- lien” notice. If that didn’t work I had an attorney file a lien for me. Eventually, the money came in. Don’t forget about collecting retainage on construction jobs, as well. At the completion of the job, send a memo billing to let the contractor know you’re expecting the money. Remember, it’s not how much you sell, it’s how much you make. And, you haven’t made it until you’ve collected it. Betsy Rosenberg has spent 15 years in the HVACR contracting business and is now a principal of Lee Rosenberg HVAC Consulting Group, Inc. Her husband is a member of Contracting Business’ Editorial Advisory Board. She can be reached at 210/479-1830 or by e-mail at [email protected] For credit checks, she recommends the Centroplex Credit Reporting which is an Experian Agency. For more information, call 888/512-4879.

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