Creating a strong company credit culture provides a universal way of doing business with the proper checks and balances in place from top to bottom within an organization. Making decisions about credit is just as important as other critical initiatives that make your company successful. After all, selling produce to companies who will pay for the purchase makes for a successful sales transaction.
Routinely, Western Growers’ members request my assistance with collection efforts for slow-pay or no-pay sales contracts. It is not uncommon to hear feedback from a member when I first inquire about the credit procedure that they have no official company policy. With all the technology and access to information we are afforded these days, not having a well-defined credit policy that is strictly followed is no longer acceptable. To help limit your company’s bad debt experience, it is essential that shippers have a mandatory credit policy, and if possible, have a credit manager, or at a minimum, a point person (champion of sorts) to ensure that all agreed-upon credit policy procedures are followed.
An internal policy detailing how to approve and authorize a customer in your system and set a credit limit is essential and a best practice. The Blue Book is a good, foundational first step in addition to seeing and reviewing the customer’s audited financials, and they also provide some predictive financial and analytical tools to explore. Other steps are bank references, customer references, how many years has the company been in business and having a general understanding of the customers’ business model.
Below are eleven general items to consider, to begin implementing your own credit policy and creating a strong company credit culture:
- Utilize credit reporting companies as well as other resources to assist in making your decisions.
- Obtain audited financials and bank references.
- Ask about what the pay practices will be with your shipments.
- How many years has the customer been in business?
- Do they have a current PACA and DRC license?
- Who are the principal owners and officers?
- Check other supplier references and, if appropriate, call those references.
- Have any employees with the customer related to prior companies that have experienced payment issues?
- Talk with other shippers, if appropriate, that may be supplying that customer to check on their experiences with payment practices
- Call Western Growers Trade Practices Department to obtain any information we may have on the account, i.e., any PACA or DRC complaints pending.
- If you cannot obtain the needed information to make an informed business decision, make the tough decision not to sell until you can get the information to make an appropriate business decision.
Important to remember that a customer assessment should be an ongoing work in progress, so always be assessing any changes in payment or other changes to the customer. Once a customer has been established, it is understood that some flexibility will be needed to allow for a consensus with any changes to credit limits or other terms.
Having a strong company credit culture will take leadership in order to inculcate that policy throughout your company but adhering to an established credit policy will pay dividends to your company by minimizing bad debt write off.
Please forward your questions or suggested blog topics to me at 949.885.4808 or [email protected].