First, it is a good policy to establish that whenever someone uses a credit card to make a purchase, always check a photo id. If the consumer is the person identified on the card, they will not have a problem showing you their identification. In fact, they will probably thank you for double checking.

Next, don’t just casually look at their signature. Check it against their photo id. Additionally, if the card is not signed, the customer must sign it in your presence, while you are holding their photo identification, or you can ask for another form of payment.

If you have online order or telephone order options, always get the name, address and landline telephone number of the cardholder. Then prior to actually shipping out the products, let them know you will call them to confirm delivery. This is highly effective because fraudulent people will not want to give you that information. It is also a good practice to have the Address Verification System on your credit card terminal. This will verify the billing address of the cardholder. Then you can match it up to the address you received. If your terminal does not have this function, call the processor to have this feature added.

It is also a good idea to have the customer sign the invoice as well as the credit card receipt. You can then verify the signatures again. You could also go a step further. After the customer receives the goods or services, have the customer sign an acknowledgement of receipt of the products.

When establishing a return policy, have notices posted in all communication, such as signs, invoices, etc., that you require the credit card used and the receipt to be presented for any exchanges or returns. You can also contact your credit card processor to have it added to your credit card receipt. The credit card processor can also help to implement a password protection on the refund function to avoid any unauthorized debits from your checking account. This also protects you and your employees.

Another way to protect yourself is to process the credit card transactions after you have shipped the products.

When you have to verify a credit card, only contact the voice authorization center phone number that is given to you by your credit card processor. Do not contact the number on the back of the credit card for authorization.

These tips will help to reduce the chances of fraud or losses. When in doubt, call your credit card processor. They are there to help and protect you from fraudulent credit card transactions.

You may have to pay court costs in order to try and get the money that you are owed, not to mention the cost to retain a lawyer. There is still the possibility that if you get a judgment for the monies that you’re due, the customer will simply ignore the judgment. While the judgment will go on their credit report, they can still ignore the fact that they owe you money.

When a customer is behind in payments or hasn’t made a payment, you’ll probably find that they are very difficult to contact, and that they make a lot of excuses. They may tell you that the payment is one the way, or provide you with a slew of other excuses that they think will get you off their back for the time being. This can be very frustrating and time consuming, resulting in even more cost to your business.

Here are some ways you can avoid these costs (and hassles) up front:

Require a credit check for your customers or clients. This way, you can tell whether or not your customers have had a judgment placed on their credit records in the past. If they have, they are probably more likely to accumulate debt from other places as well.

Get a signed agreement. Do yourself and your business a favor by making sure your customer signs some sort of written agreement before you provide them with any services or products. If you do not secure their signature on an agreement, you will not have a leg to stand on in court. This is not good, as you will lose the money that you are owed, and probably end up eating the court costs as well.

Charge a down payment or deposit. With large purchases or ongoing/lengthy work, you should make sure that you charge the customer some sort of up front payment or deposit. This will, at the very least, ensure that you are able to obtain a portion of the money for services rendered or products sold. Insert a clause into the contract that the customer does not get full ownership until the payment is made in full for the services or products.

When you are running a business, it is important to look after the business’s best interest. By allowing customers or clients to build bad debt, you are not looking after the best interest of the company. Following the tips above will most definitely save you money in the long run, and keep your business healthy and profitable.

Efficient credit control is about managing risk, about knowing your customers and being aware of the level of risk they pose to your business. A well-designed credit control system prompts you to check customer’s payment credentials before accepting orders, offers guidance when deciding credit and payment terms for customers, and allows you to chase outstanding payments quickly and effectively. All of this, and it will also impress your bank manager!

Credit Checking

Effective credit control should start before the customer’s first order is accepted. But many new businesses are so happy to see orders coming in, that they don’t think to check out their customer’s payment credentials. This can be a costly mistake, especially if your order values are very large or you offer long payment terms.

New Customers

A credit check tries to determine how ’safe’ a risk the new customer is. It establishes if the customer:

* Is legitimate
* Usually pays on time
* Has had payment troubles with other suppliers
* Is about to go bust

A new customer’s payment history can be checked through a credit agency, your customer’s company accounts or by taking references from the customer’s bank or another supplier.

Existing Customers

That a customer has always paid on time is no guarantee that he will do so in future. Circumstances change and a formerly sound business may suddenly find itself in trouble. Both are good reasons to credit check your existing customers on a regular basis. To focus your efforts, sort your customers by value of orders placed and check the top 80%. Flag and review any credit check results that have changed.

Repeat credit checking is also useful if a customer has not ordered from you for a while. For example, if most of your customers order monthly, credit check all customers re-ordering after a six months interval.

Invoicing

Goods should be invoiced on the day they leave your premises. It is good practise to run invoices at the end of each business day, irrespective of how many transactions have gone through. Most business accounting software packages can be set up to do this automatically. Send all invoices out promptly and/or email a copy to the customer.

Make sure your invoices clearly and prominently state the payment terms. Include a help line number and politely request that the customer notifies you immediately of any problems. Deal promptly with any such communications.

Risk Reduction

A number of techniques are available to reduce your business’ exposure to ‘bad debts’. They are commonly used for dealing with high-risk customers, but can be used throughout the business if cash flow is critical. This list is not comprehensive, but will give an indication of what can be done:

* Request part payment before supplying goods or services. Depending on the level of risk, request the remainder on delivery or allow standard credit terms.
* Set special (tighter) payment terms for the first invoice(s), with the proviso to relax the terms once a business relationship has been established.
* Offer an incentive for early payment, such as 1-2% discount for payment within seven days, if your standard terms are 30 days. In addition to speeding up payments, this method helps to reduce bad debt. However, early payment incentives can be expensive and you may suffer a ‘double hit’ if a customer takes the discount and then still pays late.
* Alternatively, offer a prompt payment rebate to your regular customers. This is usually calculated quarterly in arrears and issued as a credit note against future orders. It therefore does not affect your cash flow, and can be calculated just on invoices settled on time.

Credit Control

You can expect about half your customers to pay on time. To receive payment from the remainder, you need a system that starts to work even before the customer’s payment is late, as the key to efficient credit control is prompt and decisive action.

* Before you start any debt control activities, ensure that all account information is up to date. Enter all received payments promptly into the ledger to avoid chasing a ‘paid-up’ customer for an outstanding amount.
* Send statements to all customers with outstanding balances one week before the end of the payment term. Some large corporations will only pay on receipt of a statement. Don’t be caught out.
* As soon as the payment term has passed without the invoice having been settled, you must contact the customer. The quicker this is done, the faster you will resolve the issue. Keep in frequent contact until the invoice is settled.
* If you regularly have large numbers of customers with outstanding balances, create a polite reminder letter that can be sent automatically at the end of the payment term. Remind the customer of the outstanding balance and request payment within the next seven days.
* Customers failing to pay after this date should receive a stern letter/email and a phone call. Refer to the terms and conditions the customer accepted when placing the order and request immediate payment. If the customer is a business, inform them that you will begin charging interest on the outstanding balance.
* If the customer is unresponsive, make contact by telephone. Establish why the payment is late and agree a payment plan. Note the name and position of the person you spoke to, time and date of the call, and make a summary of the conversation. Confirm the agreed details and the date the invoice will be paid in writing. Keep copies of all correspondence.
* Initiate debt recovery procedures as soon as the agreed date has passed or the debt is older than 60 days.

Outstanding debt is money that is not available to grow your business. Instead, it is a liability that affects your cash flow, and that can threaten your business’ survival. A well-designed credit control system, set up at the same time as your business, protects your assets and puts you in control. And considering the number of new business failures every year, it is well worth the effort.