Policy
= rules, process = activities, procedure = specific instructions.
A
better overall process certainly can drive sales and provide better
customer value, but remember - profit isn’t true profit until you collect the cash!
Many
companies I work with have a credit process, but haven't formalized it as a policy, process, and procedure. I strongly suggest all
policies, processes, procedures be documented, reviewed/understood by your
entire team, and used in training. It's a great way to make significant improvements with operations - think efficiency, standardization, and franchise-like.
Outline
your current credit policy, process and procedure; your external credit
policies, your internal credit policies, and the credit granting and collection
process and procedures. See my website
for example. Spend time with your team
and discuss improvements.
·
Credit
Application summary page with credit decision summary
·
Credit
Application
·
Credit
Agency report
·
Credit
Card Authorization
·
Bank
and Trade References
·
Financial statements,
tax returns, copy of driver’s license, etc.
Most
companies I look at can do a much better job improving cash flow by tightening
up their credit policy, process and collection procedures.
Remember
the power of the Days Sales Outstanding ratio (DSO). In an $8mm company, an improvement from 46
days outstanding to 38 days results with approximately $175,000
of improved cash flow! Get to 30 days
and it’s a $350,000 pick-up in cash.
As one of your cash flow drivers, track
your DSO metrics and develop improvement strategies to improve results.
