"Credit practices are grouped into three categories--application, security, and policy," observes one veteran credit manager. "If you can get these three factors in place, you can avoid a lot of problems later on. The important thing is developing these points to meet the needs of your particular company."

Application. "Don't settle for a standard application or just copy someone else's," He warns, "Decide how much information you need, and make sure terms, conditions, and venue are there in the fine print:" Some other points:

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

• Know the owners and proprietors: Get the corporate name as well as the business name. "Find out how long the company has been in existence and, if it's a new business, how long the principals have been in that line of business. This is an important supplement to the bank and trade references," he says.

• Cover all legal areas: State terms clearly. State the finance charges and the percentage rate if an account isn't paid within terms." We also want the customer to agree to our choice of venue and to pay attorney fees. By signing the application, the customer also authorizes a credit investigation."

• Update the application: Times change and laws change. At least every year or so, credit applications should go back to your legal counsel to make sure your terms and conditions are still appropriate to the market.

"These work well with stress debtors," he says. "If they sign a guaranty, they can get more advertising. Promissory notes are really good because there's no dispute later on. They can't dispute the placement of the ads because they've already signed the note agreeing that they owe you a certain amount.

"This is an excellent tool even if you work out a payment plan, because it cuts down on the legal time or any reason for the dispute."

Policies. It is always surprising how many organizations do not have any written credit policy.

"Credit policy is almost folklore," he observes. "People say, 'This is the way it has always been done.' But things change, and with an unwritten policy, customers can always come back and say, 'That's not the way we understood the credit terms.'"

To avoid this problem, he recommends forming a credit team made up of Credit and all of the departments directly related to the sales-credit process.

"Go through the entire credit process step-by-step," he advises. "Develop a general agreement. Make sure everyone's eyes are open about what people are up against. Then go to Management as a group. Stress that there is no problem of Sales versus Credit; that everyone had a part in developing the policies."

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.

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