Credit Vetting and Collections Process Checklist

At Old Mutual, we support business owners like you because we recognise the important role you play in fuelling your local economy.

This checklist is designed to assist you, the business owner, with the most critical function within your business: getting paid.

Use this checklist as a guide to ensure the following critical functions are in place in your business:

  1. Negotiate the best credit and debtor terms within your business

    1. Develop a plan to get clients to pay earlier

    2. Develop a plan to ask suppliers to extend their payment terms

  2. Credit vet your customers

    1. Perform a credit check

  3. Collect your cash

    1. Work with your accounts department to always invoice on time

    2. Track who has and who hasn’t paid you

    3. Put a system in place to ensure you or your accountant follows up on late payments

    4. Determine a process of when and how you will hand over bad debts to collections agencies

  4. Insure yourself

    1. Work with your broker to determine what coverage suits your business needs best

 

STEP 1:

Negotiate the best debtor and creditor payment terms for your business

Ideally, you want clients to pay you upfront, on delivery or at 30 days. On the other side, you want to pay your suppliers at 45 or 60 days.

Get clients to pay earlier

Consider offering an incentive for immediate payments, such as a 5% discount – or charge interest on extended payment terms. But be careful not to let the desire to be paid earlier cut into your profits. 

Get suppliers to agree to extended terms

Step one is asking the question. Step two is figuring out what it will take to get a yes. Some suppliers will agree if you give them your order book or agree on a barter system.

STEP 2:

Credit vet your customers

If you want a healthy, cash positive business, you need to ensure you’ll get paid for the work you do before you begin doing it.

  • Require applications for credit

If a customer requests payment terms, require them to fill out a credit application form that requires signed consent by your customer for you to conduct a credit check on their business.

  • Perform a credit check

A credit check allows you to gauge your client’s track record on payments to other companies. This helps you to see how they have honoured their debts in the past as an indicator to how you might expect to be paid by them. Credit service companies can help you check out potential clients.

STEP 3:

Collect your cash

A strong collections process is vital to a growing business’s success, as it helps you to minimise issues with late-payers or worse, non-payers.

  • Invoice on time

The sooner your invoice reaches your client’s accounts department, the higher on the list you will be when payments are made.

  • Employ a tracking system

A good accounting software system ensures you’re made aware of late payments before they can affect your bottom line.

  • Follow up on late payments

Chasing late payments keeps clients on their toes and ensures they avoid repeating the offence. Persistence is key.

  • Hand over to collection agencies

This is a last resort for small business collection but can often help you get paid quicker than your own efforts. 

STEP 4:

Insure yourself

There are policies you can take out to protect your business against non-payment.

  1. Apply for a debtor insurance policy

Insure your business against your clients’ risk with a debtor insurance policy which is ceded to a financial institution and extends the value of your debtor’s book.

Credit Vetting and Collections Process Checklist