High-Risk Accounts and Purchase Agreements

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With accounts that pose a potential risk, it is important to begin collection activity earlier than you might with other accounts.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006. This article was a Point of View (of an expert) column.

Here are some of the signs of potential risk:

Just at the time payment is due, the customer begins to complain about one or more problems--shipment mistake, shipment damage, computer problems, etc. Your investigation uncovers that there is no problem. The customer was merely stalling.
The chief financial officer is replaced two or more times during a six-month period.
Other companies begin inquiring about the customer's financial status.
Your salespeople begin reporting information of a dubious nature on the customer that they have learned in the field.

If and when you begin to run into these kinds of situations with an account, it is important to take steps to ensure that you collect your receivables. Remind customers of your credit terms and call frequently to check that the order was received and that there was no problem with the order, and to remind customers of the payment due date.

If late payment persists, next time ask the customer to sign a purchase agreement that spells out price and terms.

A purchase agreement is an extended "purchase order" and/or a fully acknowledged bid/proposal. It can be open-ended and general, or it can be a very tight, signed, enforceable agreement.

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Such an agreement can provide for benefits, offered by you, such as method of delivery, packaging, guarantees, and reorder prices.

Since purchase agreements affect the way the sales department sells to the customer, it is important to develop the agreement with the cooperation of the sales department.

In fact, a well-crafted purchase agreement can become an excellent closing tool for salespeople.

James T. Herst is president of Performance Source, Inc. (Highland Park, IL), a consulting firm and collection agency that specializes in credit and collection management and personal contacts by attorneys to recover slow-pay and delinquent accounts without customer alienation. Educated at the University of Southern California, Herst also serves as a consultant on cash-flow strategies. He writes, speaks, and holds regular group workshops on credit techniques.

www.performancesourceinc.com
(847) 831-5080

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.