If you have been to the bank to get a business loan to start a business or for funding for your existing business you probably approached them with a business plan and possibly a marketing plan or outline. Every business plan has part of if not all of a marketing plan included. If you were denied your loan, part of the problem could be that you didn’t explain or elaborate enough on how you were going to pay back the money you want to borrow.
Your business plan tells the lender what you are going to do for a business, and the marketing plan tells them how you are going to obtain new clients and make money. Your credit plan or credit policy tells them how you are going to get paid, in order to pay them back. The credit plan will also tell them what you will do if you do make sales and don’t get paid. This can put a bankers mind at ease, while showing them that you are serious about your business and about paying them back.
Approval of any loan is based on many things, one of the most important being on how you present yourself and your business. A well written business plan is the first step, and will give the lender an overall picture of your business. Make sure you include a credit history or if you have poor credit, get copies of your credit reports and fix any errors and pay off any debts before approaching a lender.
You can expedite the processing of your loan by providing the lender with as much relevant information that they need to make a decision right away. If they have to continually contact you for more information, your chances of approval go down. Banks will carefully and particularly look to see if you have a solid understanding of financial record keeping, business credit, the importance of collecting accounts receivables, inventory control and turnover and marketing. If you include a credit policy as well as a marketing plan or marketing plan outline with your business plan you will find that the lender will take you much more seriously and if they had any questions on your understanding of their being paid back will see that you have thought this through and have a plan in place to pay them back their money. That makes every banker happy; remember they make money by lending you money.
Remember, when you are trying to get someone to give you money, it is a hard job and the more thorough you are the better your chances. If you approach your lender with a professional looking business plan, that includes a marketing plan and a credit plan, your application will go to the top of the pile.
Maintaining your accounts receivables once your loan is approved can usually only be achieved by giving each account proper and constant attention. You need to keep on top of all accounts, even those that are “just a little bit” past due.
A successful in-house policy must:
- Be tough yet flexible
- Have specific guidelines of action
- Be consistently enforced
Proper and consistent attention involves developing a collection procedure or policy and following each step fully before moving on to the next step. It means that you never move backward or repeat a step in the hope of salvaging an account. You need to be firm and on top of things.
Every businesses credit policy will be different base don what they want for their business. Your credit policy should cover how you want to be paid, when you want to be paid, what your terms of payment are and what will happen if you are not paid on time.
I have a couple of examples of different credit policies and guidelines that anyone can use in my book “Become the Squeaky Wheel, a credit & collections guide”. A credit policy doesn’t have to be something that scares you off as to difficult or complicated, it can be as easy as having every customer fill out a credit application, you or your staff checking their credit and then a decision being made on if you would like to extend credit to that customer based on the results of your research. Your credit policy can be a one page document that just lists the steps you want taken before credit is extended and how to handle a customer that gets past due once you have extended credit to them. Your credit policy can go into as much or as little detail as you need.
An example of a short and sweet credit policy could be:
- Have every customer fill out a credit application
- Check their credit and references
- Decide if you want to extend credit to them or not
- If you don’t extend credit, send them a letter advising them of this. (free examples of letters you can use can be found in “Become the Squeaky Wheel”
- If you do extend credit, decide on a credit limit and send the customer a letter letting them know how much credit they have
- FOLLOW UP on all accounts weekly
- Send friendly reminders when accounts get over 30 days
- Call customers who’s accounts hit 45 days
- Put accounts on hold when they are over 60 days
- Have a procedure in place on what to do if you receive a bad check.
As your business grows or as you run into different situation, you can add to your policy so that it is customized for you and how you want to handle your money. Remember, it is up to you to decide how, when and where your customers pay you, if you don’t have a credit policy, you are letting your customers control your cash flow!
About the author
Michelle Dunn is a recovering bill collector who has spent the last 20 years stepping into dangerous debt collection potholes. She is a successful business woman and the author of an award winning book as well as 6 other published titles. She is the founder and president of her 10 year old Credit & Collections Association with thousands of members. Learn more from Michelle at
www.michelledunn.com and www.credit-and-collections.com