Small business credit and collection practices, or lack thereof, can make or break a small business. Unfortunately, many business owners give all their attention to sales or daily operations. A good credit policy will grow sales, but you must stay on top of your credit customers.

Here are the top 5 credit and collection mistakes small business owners make:

Poor underwriting

If you go to your bank for a loan, they gather information about you, and they make a decision based on that information. Gather as much information as you can about a customer who seeks credit from you, including business references. 

One size fits all credit limits

All customers do not deserve the same credit terms. A long-term customer should receive better terms than a new business that has no credit history. Know your customers and how they pay. Adjust credit limits up or down, as necessary.

No contract

Every customer that receives credit terms from you must sign a contract. Let me repeat that ….every.single.customer. A contract, which must be in writing memorializes your credit arrangements. Terms that are well communicated means fewer disputes down the road. A contract can also reduce your costs if you need to refer customers for outside collection.

No consistent program to manage accounts receivable.

If you do not manage your accounts receivable, they will manage you. You or someone you designate must take responsibility for monitoring A/R and make a consistent effort to follow up on customers with aging receivables. 

Waiting too long to hire a collection agency

I once had a customer tell me that he had invoiced a customer monthly for two years. After 90 days or so, didn’t someone think maybe the monthly dunning was not going to work? The longer you wait, the more chance you are going to pay a higher rate for collection anyway. Hire a collection agency you can trust so that you can focus on current customers.