When asked to define “credit success” what comes to mind? Does your definition include accounts receivable? Ours does. We believe credit success is twofold; a business’ ability to obtain credit and its ability to extend credit to customers. The formula for success for both components is based upon a successful ability to collect accounts receivable in a timely manner.
Business’ ability to obtain credit:
Whether you need financing at this time or not, it is of utmost importance to operate as if you will. You may unexpectedly want to avail yourselves of the opportunity to expand, accelerate growth, etc. or be ready in case of a downturn. Applying lender guidelines with continuous review will help you move towards eligibility for credit.
When a business applies for credit, lenders examine accounts receivable. Lenders will compare your receivables against industry norms. A lender will review your receivables in three areas: concentration (balances owed by any one customer), dilution (actual dollars paid on the receivable) and length of payment cycle (days paid past terms).
Extending credit to customers:
If selling on terms you are a lender. Business owners extending terms must have a policy in place to pre-screen customers to confirm they are credit worthy. You may want to impose the same guidelines on your customers that your lender is imposing on you. The goal is to minimize the number of accounts receivable that are not paid in accordance with terms and/or prove to be uncollectable.
Let us help you achieve credit success by reviewing your receivables and/or credit policy. An examination of the receivables will help diagnose problem(s). Feel free to either email Jocelyn at JNager@ffgnesqs.com or call us at (212) 686-0100.