Credit relationships begin with the decision to extend credit, but the process does not end there. Credit granting is never an end in itself. No sale is complete until the product or service is paid for. It is cash flow, more than profit or sales or accounts receivable that is the lifeblood of any corporation.

Business success depends in large part on how effectively the credit functions are performed. Most bad debts are the result of poor initial credit evaluation or of a failure to keep up with the changes in the buyer's financial status--not the result of inadequate after-sale collection efforts. The keys to success before, during, and after a sale can be described as follows:

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

• Evaluating a new account. Gather as much credit information as possible on the prospective buyer. It is essential to get a completed and signed credit application from a new customer before extending credit. Careful analysis of payment experience with other creditors will help determine if the customer will be able to pay the debt by the due date. Background information on the company will tell you if they are operating successfully and if they are managing the assets effectively. Financial data will provide a quantitative measure of their performance. This information will determine the creditworthiness of the company.

• Setting the appropriate terms and credit limit. Gather and evaluate as much information as possible, such as assets and liabilities, balance sheet, and income statement. Establish a credit limit that is in your best interest and that is comparable to what other competitors have granted.

• Collecting promptly. Calling before the payment is due is one technique. It requires finesse. The collector calls in advance to insure that the invoice and the merchandise were received in good order, whether you are calling before or after the payment is due. Always be polite and businesslike. Be specific about your requirements. Secure a payment commitment with check number, and the date payment will be mailed.

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• Negotiating. Have a definite plan of action. Take charge. Never threaten. Convince the debtor that it would better to resolve the problem and come to an agreement that would satisfy both parties than to force you to take action that benefits neither party in the long run. When an agreement is reached get it in writing.

• Dealing with broken commitments. Take the initiative. Find out what problems or needs the customer may have. In most instances you will find the customer is having cash-flow problems. If you have two broken commitments, recommend a credit hold.

• Hold on to your advantage. Customers will place orders on a daily basis and expect them to be shipped the same day. At the same time, the account may be past due or over the credit limit. If so, you should call the sales person informing him/her of the situation and place the order on credit hold until you receive a reasonable commitment for payment of the past due amount. If the customer has a history of making and then breaking commitments, then you may need to hold until payment is actually received.

• Know when to place an account for collection. If there is no phone response, when the customer refuses or is unable to pay, when the account is past due and all other efforts to collect the open balance have failed, when you feel you are no longer making any progress--at these points the earlier you place an account for collection, the better chance you have of recovery.