What to do if a customer files for bankruptcy

As a business owner, you always hope your customers will be financially stable and able to pay. Unfortunately, some customers will end up filing for bankruptcy. This can be a stressful time, especially if it was one of your more important customers. You may be asking yourself “What do I do now?” or “How do I prevent this situation from getting worse?” Here are six steps to take when you are notified that a customer filed for bankruptcy.

1. Arrange for all goods in transit to not be delivered

Depending on how you deliver your product and conduct business this could be as simple as an email or it could involve a more complicated process.

2. Make sure all future shipments are canceled

Again this could be easier said than done, depending on your arrangements.

3. Check to see if you can submit a reclamation notice on already delivered products

4. Determine how much the customer owes and collect all financial documentation to support this claim.

You should begin organizing all financial documents related to this customer in order to be able to provide sound financial proof of the debt owed to your company.

5. File a proof of claim with the bankruptcy court.

There are many important things to note about this. Make sure you include the required supporting documentation with your claim. Make sure you send the proof of claim by registered mail, with a return receipt requested. You should contact the court to make sure the documents were received after an appropriate amount of time. It is always a good idea to keep duplicate copies of all documents in a secure place in case the court misplaces the originals

Bankruptcy can be a pain to deal with but if you are proactive you can save yourself time and money later down the line. It may seem confusing at first, but the situation will only get worse the longer you wait to deal with it. As always, if you have any questions or concerns contact a lawyer.

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A Few Tips to Improve Collections

One of the best things you can do to increase the amount of bad debt you collect in-house is train those responsible for collecting it. This may sound obvious, but in many cases few companies devote the time and effort it takes to really improve their collection efforts. Of course, it may just be easier to outsource, but even very little training can yield substantial long terms results. Here are some of the things our collectors have found to be most helpful.

Do not accept everything your customer says

Anyone can call a customer, hear an excuse for why payment is late, and then call it a day. Customers will always have reasons for why they have not paid, a good collector will understand be able to understand what excuses are real and what ones are not. A good way to go about figuring this out is to simply ask for more details. Real reasons tend to hold up to the test of scrutiny while made up ones tend to fall apart once they are prodded.

Do not forget you are also in the business of customer service

This is one of the most important pieces of advice to tell new collectors. Under no circumstance should you bully or intimidate your customers into paying. You should remain firm, but you should always try to try to work with the customer, not against them. People tend to respond much better when they think you are on their team.

Business people, C2C Resources, Merchant StatementsKnow how much is too much

Calling a customer is great, but calling them 10 times in a day is not. While this may be a silly example, collection efforts abide by the law of diminishing returns. This means that, at a certain point, more emails, calls, or letters will help less and less. It is important to be persistent, but never overbearing or excessive.

Understand the big picture

It is important to always consider the reward to effort ratio. Meaning, the more effort required to collect an account the larger the reward should be. At the end of the day, a collector’s job is to recoup the most they can for the company. If you spend 90% of their time on a small account, you are leaving money on the table. Of course, you should not let customers slide just because their account is small, but at the end of the day, it is important to understand the bigger picture.

Though in some cases you will have to outsource the collection process, in many cases some simple training on how to collect the debt will allow you to keep more of that money in-house.

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What the holiday season means for credit

The holiday season is quickly approaching and that means it will soon be the busiest season of the year for many of your clients. Most businesses are preparing for the influx of sales from Black Friday, Cyber Monday and the end of Q4 leading up to major gift-giving holidays like Christmas and Hanukah. As Holiday shopping ramps up, businesses have been increasing their inventory dramatically.

What does this mean for you?

While this may not apply to the service-side business customers, your retail customers are most likely investing a significant amount of money right now in the months leading up to the holiday season. By growing their product stock for the holiday rush, they will be looking to negotiate more flexible payment terms or delay their payment to account for the pre-season costs.

What should you do?

While these businesses may be strapped for cash leading up to November and December, it won’t last long. Once shoppers head out to make their holiday purchases, your customers will have plenty of cash on hand to pay off outstanding debt. The one problem is you are not the only person trying to get paid. This means you need to assert yourself as someone they will want to prioritize. The goal is to get on your delinquent customer’s payment schedule. Make your business a priority so that you receive payment between November 15 and December 15. Chasing the debt after December 15 will be unsuccessful because many employees will be away for the holidays and it will be significantly easier to push payment off until the beginning of the year.

If you are in the middle of a debt collection campaign, emphasize the importance of paying the debt when there is an influx of cash flow. Check with your sales team to see when they last visited the delinquent customer . They most likely will have an insider insight to their stock levels and current order quantity. Remember to always do your research first before getting on a call with a customer.

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Why Low Unemployment Numbers Can Spell Trouble for Credit Departments

The current unemployment level of 4.4% is around the lowest it has been since the months leading up to the financial crisis of 2008. This seem like great news. More Americans are working. More companies are expanding. The economy is growing, but growth can sometimes spell trouble for credit departments if is not handled correctly.

The calm before the storm 

So this sounds great for all those businesses who are waiting for their accounts receivables to finally come in. They sold particular business goods on credit, trusting that they would be paid at a later date. With this increased revenue, businesses around the country should have the cash on hand to make good on their past debts and balance their books. Many creditors are happy now, and the debt collection business just became a bit easier.

However, this may only be temporary. Companies are growing, so they buy more goods from creditors and hire more employees to handle the load. What can happen, though, is that some businesses do not forecast their needs appropriately and tend to buy and hire more than necessary.

So instead of hiring the two workers that are ultimate needed, the business ends up hiring 4 or 5. Instead of buying x number of materials on credit, they buy 2x. This all has a way of working out in the short run, but when growth either slows or is not as large as was expected the bills start to pile up.

So sure, low unemployment numbers can be great – but just don’t let your customers get too ahead of themselves.

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How to Collect Debt Yourself

Small business owners typically find themselves wearing many hats. One day you may be the business best salesmen, the next you are worrying about how to pay for a new office space. One of the many jobs you may have to take on is that of debt collector. Its not a fun job, but being good at it can be very beneficial to your bottom line. Here are some tips to help you collect debt yourself.

Know what you are going to say

One of the biggest mistakes you can make is assuming you can just “wing it. Having a script and rehearsing it before hand allows you to have a confident demeanor and can go a long way to securing payment.

Keep it short and sweet

You do not need to give a long winded explantation about why you need to get paid. A short, well rehearsed, and confident message will let your customer know you expect to be paid and thats the end of it.

Be well informed

You should know as much as you can about the account before you make the call. Do they have a history of late payment? Are there any extenuating circumstances you should be aware of? You should also view everything in context. If they work in an industry that has been hit hard economically, you may have to settle for less in the end.

Follow up

Do not let a customer make empty promises just to get you off the phone. If they claim the person you need to speak to is out of the office, find out when they will be back and call then. If they promise to pay but end up delaying, give them a call back. Maintaining your persistence will show you are serious and serve as a continual reminder of the debt they owe.

There is no one size fits all solution to debt collection. Every customer will be different and sometimes you may have to make a change on the fly. With that being said, following these general guidelines will provide you with a good baseline to improve your collection skills.

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7 Mistakes Your Credit Department Might Be Making

Even with the best of intentions, credit professionals will still make mistakes. This is the price of doing business sometimes, but here are 7 mistakes that can be easily avoided with a little training and self discipline.

Mistake number 1:

Lack of a healthy dose of skepticism. Some of the best credit professionals rarely believe their customers. This is not a knock against their customers or a sign of trust issues. It is simply part of their job to question everything in order to make the best decision possible.

Mistake number 2:

With that being said, mistake number two is failing to realize risk is part of the game. Even if you question everything, extending credit is not an exact science. You will never know for certain if your customer will pay. Sometimes the only way to make money is to take calculated risk.

Businessman, Creditor, C2C ResourcesMistake Number 3:

Failure to see the warning signs. Keep your eyes and ears open for the flags that say ‘Trouble’.

Mistake Number 4:

Settling for the customers proposed payment plan. Negotiation is almost  always an option.

Mistake Number 5:

Failure to view time as the enemy.  The more time that passes, the harder it will be to collect. Sometimes you have to know when to give up and turn the account over to collections

Mistake Number 6:

Accepting the customer at their word. While its great to hear the customer say they are going to pay, it is even better to get that in writing.

Mistake Number 7:

Assuming that your company is the only company your customer owes money to. In many cases this customer may be receiving multiple phones calls a day about their outstanding credit. You need to make yourself noticed in this crowd.

What are some mistakes you see your credit professionals making?

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How to Make the Most out of the Summer Slowdown

Many companies will begin to experience the typical summer slowdown as consumers spending habits are disrupted by the summer heat and activities. Of course, seasonal business such as pool supply stores and beach hotels will not feel this summer slump, but many business will see the summer months hurt their bottom line. Here are some good ways to save money and use the added free time to improve your business:

Reduce your inventory

If you typically see customer demand wilting in the summer heat, now may be the time reduce your stock on hand. This not only prevents lost revenue but can also make your business more flexible moving into the busy fall shopping season.

Adjust your schedule

Air conditioning cost can skyrocket during the warm summer months. If it is possible, you should consider shifting any heavy electronics use to the morning and evening when it is cooler outside. Opening some windows or bringing in some fans can also help quell the mid day heat without breaking the bank.

Summer Specials

While this will vary widely depending on your business, it is often beneficial to run summer deals in order to increase sales and traffic to your business.

Use your extra time wisely

If you have extra time due to a summer slow down, try to be productive and plan for the future. Make a list of things you want to accomplish and go at it. This can be a great time to look at a long run view of your business. Maybe that means learning a new skill that you think will come in handy later down the rode or maybe you think it is time to increase your online presence. This can also just be a great time to get organized and cleaned up. Whatever you decide to do, do not waste this valuable time.

Does your business slow down during the summer? What do you do to prepare?

 

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What Not to Say to a Customer 

Even the best of us can get caught up in the heat of a conversation. Dealing with customers who refuse to pay their bills can be a very frustrating job, but here are four things that no customer wants to hear.

Using the term “Have to”

No customer wants to be told what to do. It is important to be firm on your position and make the customer know where you stand, but demanding a customer do something rarely compels them to change their mind. Call it human pride, but people want to feel like they have a choice and are complying on their own accord, not because they have to. An alternative to this would be to give your customer different options of what they can do. Even if all these options are similar or equally harsh, giving the customer a choice always helps.

Anything that suggests you or bored or do not care.

This may be your 100th call of the day, but to your customers it is their livelihoods. It is important they feel like you care and are not simply trying to get paid. A little compassion can sometimes go a long way.

Using the term “policy”

Nothing will annoy a customer more than if you say “well I wish I can do that, but its against our policy”. It sounds like you are giving them the run-a-round and do not really care. Always try to offer alternatives and focus on what you can do for them. Try to make it seem like you are on their team and are fighting for them as much as you can.

Yelling or taking out your frustration on them

Getting angry and screaming at a customer almost never helps. While a customer may frustrate you, it is always important to keep a level head and work with them. Yelling and screaming will simply impede or ruin any progress that has been made on the account. You should remain firm and professional in your conversations, whether that be over email, on the phone, or in person.

Obviously there is not a one size fits all policy when it comes to collecting debt and in some cases these tactics may be necessary, but overall these practices should be avoided. It is almost always better to work with your customer than against them.

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The 5 C’s of Credit

Most people have heard of the 5 C’s of credit. The 5 C’s encapsulate the most important factors to consider when deciding whether to grant credit to a customer or not.

Character

Before examining the financial side of the equation, it is always important to take a set back and think about what type of person this client is. Morally speaking, do they appear to be the type of person that will pay? If you are willing to extend credit to a customer, you should know them well enough to be able to answer that question.

Capacity

The next step is to determine if they even have the financial ability to pay for the good or services. Even if their heart is in the right place, some businesses simply do not have the capacity to pay.  In this case, you should find out how profitable the company is and whether they are in a sound long-term financial situation.

Capital

Does it appear that the applicant has financial strength measured by net worth or equity?

Collateral

If the client is unable to pay, do they own assets that could cover any unpaid debts. This could be in the form of machinery, inventory, property, or any other asset of value. You should also make sure that the assets being considered for use as collateral are not being used to cover an existing loan.


Conditions

Does it appear that current economic or industry conditions will affect your applicant favorably? While past performance and metrics can paint an almost complete picture, you must also look forward to see how changing economic conditions could affect the business moving forward. Will they be able to pay 6 months or a year from now?

Obviously there are plenty of other factors to consider when considering to grant credit, but the 5 C’s provide a baseline guide to get the ball rolling.

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Exporting Basics: Check This Video Out!

What is your export potential for your business? Can you export your product? If so, what are the regulations? The questions are many!

To get a handle on the aspects of foreign trade, we encourage you to check out the International Trade Administration’s YouTube channel.

You’ll find short videos from foreign regulations to export counseling including this one we’re featuring here:

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