Top tips for putting a customer on credit hold for late or non-payment
Using a credit hold function within your credit management strategy can be a highly effective tool of encouraging payment from your customers. Knowing how to effectively implement the credit hold procedure into your business is vital for its success; I must stress, however, that if you are going to have a credit hold function you MUST stick to it, or you risk your customers seeing it as an empty threat.
Here are some tips that you can use when implementing and running your credit hold function that, when used correctly, have the potential to encourage payment from your customer without having to take legal action and could save a business relationship.
Using a credit hold procedure for late or non-payment
Have it in your terms and conditions
You should certainly inform your customer that you implement a credit hold function in your business for late or non-payment of invoices. There should be a clause in your terms and conditions stating this, as well as a disclaimer for any consequential loss claims that could occur as a result of putting your customer on credit hold. If you don’t have it in your terms, you may find you are in breach of contract for failure to supply.
Review your customer list regularly
Weekly or monthly is ideal, dependent on what is right for your business. You should discuss a proposed ‘credit hold’ or ‘stop’ list with relevant people within your business to determine whether it is necessary. Once the decision has been made ensure you let the right people know that work is to be halted until payment is received. Keeping sales in the loop of the decision to put a customer on stop is very important.
If you have a credit limit – let your customer know before they reach it
If you implement credit limits for your customers ensure you let them know in advance that they are nearing their limit and politely ask them to make payment to avoid the consequence of being put on hold.
Give seven days’ notice
Once decided that they should be put on credit hold, give your customer seven days’ notice that all work will be halted if payment is not received in 7 days. The majority of the time this will spur your customer into paying to avoid any work being halted.
Negotiate if possible
Your customer may not be able to pay their full balance in the 7 days’ notice you give them, be open to negotiating with them and set a plan for when the balance will be paid off.
Call before you send letter
If it has been 6 days since your notice of stop letter and you haven’t yet heard from your customer, give them a call to let them know that their account will be put on stop the next day.
Send letter of stop
As it says on the tin, when 7 days have passed halt any and all work with you customer until payment is received or a deal has been negotiated. Again, I must stress, that if your business covers many departments make sure every relevant person knows that work is to be stopped.
Ring them when the letter has gone out
When the letter has gone out, as you did with the notice of stop, let them know. If work has been halted and they are now aware that you were very much serious when warning them, you may find payment is received quickly.
Payment or being final demand proceedings
If payment is received, great, you can carry on normal business with your customer; if payment fails to be received then I recommend you send a final demand and begin legal proceedings if necessary.
For many of our outsourcing clients we operate their credit hold policies so that they are paid more quickly; contact us today to find out how we can help your business.
