Q: Should I check credit for every business customer?

A: If the cost of checking credit will take a whopping chunk out of your profit margin, don’t bother. For example, I don’t check credit on businesses placing orders under $200 net. But be sure to have firm credit extension policies, or your credit department won’t check anyone’s credit!

Q: Should I have different credit policies for established customers?

A: This depends on how aggressive you want to be. When first offering credit, you may want to be conservative with terms and limits, even if the applicant has excellent credit. Once a good payment record has been established, you might extend your credit limits or terms. Many businesses, especially service businesses, require partial prepayments for new customers, progress payments, and/or final payments due immediately upon completion.

If you want to be more aggressive, consider how long a customer has been doing business with you and whether its credit references and financial condition are solid.

Q: A small retailer owes us $500, but it can’t pay it. What should I do?

A: Get on the phone and push, as nicely as possible, for payment today. If the retailer refuses to make a commitment to pay immediately, go for a commitment to partial payments. Suggest $50 or $100 per week until the account is settled.

Q: A homeowner owes us $1,800 for landscaping, but I haven’t seen a dime. What should I do?

A: First, send emails, make phone calls, and mail letters requesting payment. Try to get some contact to figure out what the situation is. Did they think they paid already? Are they away on vacation? Are they unhappy with the work? Are they disputing the amount? Do they pay all their bills late? Did they just totally run out of money? Don’t make assumptions; find out what the issue is and address it. If you still don’t get paid, go to the home and nicely ask for the payment in person. If all else fails, take the homeowner to small claims court.

Q: How much money can I expect from a bankrupt business customer?

A: Typically, even if the customer is filing Chapter 11 bankruptcy and reorganizing to continue the business, you can expect only pennies on the dollar. This is often 10 cents or less on every dollar owed to a very small business. Even this minimal amount might take years to collect. Remember, lawyers get paid first, then secured lenders, then tax authorities, then unsecured lenders, and then, and then only maybe, general creditors, such as yourself.