If you are in an SME, I recommend taking into account the following aspects when drafting collection and payment policies.
- The strategy of the company: If the company wants to expand its client portfolio, it is different from deciding to stay only with current clients and retain them.) The debt capacity: If the company does not have sufficient liquidity, the credit policies must simply be adjusted to the debt capacity of the company, because otherwise the cash flow (liquidity) of the company can be compromised. If otherwise, your company has sufficient liquidity, it has more options when it comes to offering loans.Type of clients (companies, people, etc.): If your target market is companies, the credit and collection conditions are some and if they are people (point of sale) are others. In addition, there are also variations due to the size of the companies that are your clients. For example:An automotive company has its payment policies and your bargaining power in this case is minimal, that is, as they are very large companies, the best thing you can do is adapt. Market conditions / competitors: If in the market where you operate, your competitors offer credit conditions of 30 days for example, it is not convenient for your company to offer them a credit lower than this, because it would place itself at a competitive disadvantage. Cash flow: This is very important for the financial health of the company, and It is summarized as follows: If your suppliers give you 30-day credit, for example, this term is your maximum capacity to give credit to your clients, because otherwise you would be losing immediate liquidity for operations.This is usually a commonly neglected aspect in companies that later has important consequences. Unless your company has a good debt capacity and a profit margin that financially allows it to cover a difference between income and expenses.Historical analysis: Regarding accounts receivable, it is convenient to see to date what percentage of uncollectible accounts it has your company, in order to analyze the type of client and other conditions in which this happens and include in future collection policies, actions that help to improve this, that is, learn from past mistakes, if possible quantifying everything to then with indicators to numerically establish the differences. Current legal framework: All this must be framed in the current legislation, especially in the details of the collection policies.For example: requirements to be demanded from clients to give them credit, measures to take in case of non-payments, etc.
