I am frequently requested to assist shipper members of fresh fruits and vegetables with collection of slow pay or no pay sales transactions.  It is not uncommon to hear when I inquire about the credit policy for their company, that I am told they have no official policy.  In this day and age of technology and information, not having an established credit policy is no longer an acceptable business practice. To help limit bad debt exposure, it is essential that shippers have a mandatory credit policy in place and have an assigned internal point person (champion of sorts) to ensure the agreed upon credit policy procedures are followed.   

Where to start?  An internal policy detailing how to approve and authorize a customer in your system and set a credit limit are essential. The Blue Book and Red Book are good foundational first steps and in addition to seeing and reviewing the customer’s audited financials, there are some predictive financial tools I would encourage you to explore with the Blue Book. Other steps are bank references, customer references, how many years has the company been in business and having a general understanding about the customers business model.  Just because the phone rings, that does not make the caller on the other end of the phone your best new customer.

Even establishing internal protocols to review existing customers is a good best practice. No matter what criteria you establish for your credit policy, it has been my experience that if followed, you can minimize bad debt experience.  Below are some general items to consider, but should not be considered an exhaustive list:

1. Utilize credit reporting companies as well as other resources to assist in making your decisions.
2. Obtain audited financials and bank references.
3. Ask about what the pay practices will be with your shipments.
4. How many years has the customer been in business?
5. Do they have a PACA or DRC license?
6. Who are the principal owners and officers?
7. Check other supplier references and, if appropriate, call those references.
8. Have any employees been connected with prior companies that have experienced payment issues?
9. Talk with other shippers you know are supplying that customer to check on their experiences.
10. Call Western Growers Trade Practices Department to obtain any information we may have on the account.
11. If you cannot obtain needed information to make an informed business decision, make the tough decision not to sell until you can get the documentation. 

Remember, customer assessment should be an ongoing responsibility, so always be looking at any changes in payment or other changes to the account. Once a customer has been established, we understand some flexibly will be needed.  It may be good to consider a small internal credit committee to allow for a consensus with any changes to credit limits or other terms.   

I hope these suggestions assist in helping you think about your own credit policies. Please contact me if you would like to discuss your specific company credit policy in more detail.  Remember, adhering to an established credit policy will pay dividends to your company by minimizing bad debt write off.

Please forward your questions or suggested topics to TommyO@wga.com or call me at 949-885-2269.