CREDIT MANAGEMENT
Putting a customer on credit hold for late or non-payment
By Wasilwa Miriongi
If part of your collection policy is to stop supplies , make sure to have a welldefined policy , which is communicated and understood by all staff . Stopping supplies is a sensitive scenario , which causes upsets when misunderstood or misapplied . If you intend to stop supplies , your collections cycle should
A credit hold can be applied to a customer so that all open orders and future orders cannot be processed unless the credit hold is released . For computerized systems , you ’ ll find that it ’ s automatic . A credit hold can be added by opening the customer . When an account has a credit hold , new invoices cannot be generated for that customer and you will see an error message when trying to create invoices . Credit holds can be released through the same process as adding a credit hold , by simply toggling the credit hold option off on the customer .
If you want an angry reaction , it ’ s from a salesman knowing a customer account has been stopped and the company will not supply until the amount due is paid . It may not be the company ’ s fault but the way it ’ s handled might cause such a reaction especially if the rep is kept in the dark .
Some creditor companies give their debt collectors rather than their credit manager the authority to threaten to place accounts on credit hold or stop supplies to actually do so and then those companies are sometimes surprised when customers and salespeople complain that “ Stop Supplies ” are used in way that is arbitrary , too frequently , for the wrong reasons or without adequate notice . As a credit professional I hold the view that debt collectors should certainly be encouraged to recommend holding supplies or stopping credit to a customer . However , the credit manager should be the one who decides which customers need to be placed on credit holds .
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-under 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 .
As relates to credit hold or stop supplies decision it could be wise to ensure that : Credit holds are used as infrequently as possible , remember the inconvenience it causes to the customer ; 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 ; Credit holds should be considered a last resort for the credit department after exhausting all negotiated payment options . Tacking drastic action just like a trigger happy soldier should not be encouraged .
Customer credit holds can sometimes damage a business relationship beyond repair , extreme care need to be exercised ; Under normal circumstances , we need to try to give customers advance notice of a credit hold as often as possible ; Ideally , the threat of a credit hold will be enough to persuade a reluctant customer to do the right thing ; Do not automatically start supplying or resume credit to the customer just because the customer finally paid the balance owed - re-evaluate the customer ’ s creditworthiness ; If payment is received , great , you can carry on normal business with your customer , if payment is not received then I recommend you send a final demand and begin legal proceedings if necessary .
Maybe the question to ask is Why ? Because sometimes the debtor ’ s finance department is told to hold payments until a creditor threatens to place the account on hold !
There are a number of factors to consider in connection with a credit hold decision , you have to ask yourself these questions : How much is owed ? Is it just a small amount or a large sum ? How much is past due ? What is their credit limit ? What is their debtor ’ s balance ? How do they normally pay us ? How long have they been a customer ? How do they normally pay other creditors ? What is the customer ’ s financial condition ? How much is past due , and how far past due ? Do we hold any form of security or collateral ? Has their financial condition deteriorated recently ? How much on average do they buy from us each year ? Have we notified the salesperson about a possible credit hold ? Does the customer have any commitment for payment at this point ? Has the customer made and broken any payment commitments to us ? Have we given this customer advanced notice of a potential credit hold ? Is the customer being open and honest , or alternatively either silent or deceptive ?
Answers to these pertinent questions informs the decision whether to put an account on hold or not and in a nutshell is the effective use of account holds . ■
Wasilwa Miriongi is a Certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . Engage him via email at :
WMiriongi @ gmail . com
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