Introduction

Here you are, reading an introduction to a book about credit and collections and wondering whether to venture farther inside. While we don’t expect you to shout from the rooftops, “This is the greatest book ever!” the simple fact is, implementing good credit and collections policies in your business quietly and effectively improves your cash flow.

Making a sale is only half the battle. Unless you run a cash on the barrelhead business, a sale represents only the possibility of actually getting paid, regardless of the quality of your products or services. Whether you’re selling on credit or chasing down a bad check, your credit and collection practices and policies will convert your accounts receivable into cold, hard cash.

About This Book

From soup to nuts, this book explores the entire topic of credit and collections. Starting from scratch, we walk you through establishing sound credit policies and billing procedures to document creation and data handling to payment reminders, dispute resolutions, and full-out collection remedies.

In this book you find specific and reliable suggestions, tips, warnings, forms, laws, and sources of information as you’re coached by authors who’ve been there and done that. Step by step, you discover (or reinforce your existing knowledge about) the best ways to extend credit in your new customer relationships, review existing relationships, and try to recover payments on overdue accounts from broken relationships.

Conventions Used in This Book

It’s difficult to discuss the specifics of credit and collections without introducing its jargon, especially in connection with the legal stuff. We introduce new terms and legal jargon in italics, followed by definitions and explanations.

As customers take all shapes and forms, the book uses different words for debtors, depending on the context in the sentence. We may reference somebody who owes you money but with whom you’re still friendly as an account, customer, or company. Because customers may be individuals or business entities, our references to individuals may be to him or her, while we refer to a corporation or other business as it.

As time passes and a customer’s account becomes more delinquent and your relationship becomes somewhat strained, we refer to the same individuals, companies, or both as debtors. Finally, when we discuss suing for the past due balance, we refer to these same individuals, companies, or both as defendants. Oh, and after a lawsuit is filed, your company becomes a plaintiff rather than a creditor. After you win your lawsuit, your company becomes a judgment creditor.

This book has two authors, but sometimes (particularly when we’re relating stories or personal experiences) we use the word I instead of we. It seems unnecessary and distracting to identify which author is sharing a particular story, and in other contexts, using we makes things sound weird. In case you just can’t stand not knowing, most of the stories are Steve’s.

What You’re Not to Read

The grey boxes scattered throughout this book are sidebars, which — although intended to be amusing and occasionally informative — may be disregarded until you have time to check them out.

When you see the Technical Stuff icon, things are going to get a bit heavy. If you’re reading a chapter to familiarize yourself with a topic, you can skip the material, as you don’t need it for general knowledge. If you’re reading to try to get a handle on a specific issue, especially a legal issue, those technical details may prove important, so that’s the time to put on the hip waders and . . . you get the idea.

Foolish Assumptions

Although we can’t reach out to shake your hand, we believe we know who you are and, more important, what you’re looking for in a book on credit and collections. We assume that, to some degree, you’re a do-it-yourselfer and you’re looking for specifics so that you can implement good credit policies, enjoy good customer relationships, and have the information necessary to collect money owed to your company.

As a business owner and/or manager, you want to establish good credit practices from the ground up. We assume your business acumen has served you well in growing your company. However, when it comes to credit and collections, you recognize that you need to round out your knowledge. You’ve been focusing on sales, and now you want to complete the cycle and shore up collection of your accounts receivable. You want a set of credit policies and procedures that are practical to implement, effective, and legal.

As a collector (regardless of your job title, many of us, myself included, are collectors), you’ve been repeatedly warned that the collection industry is highly regulated. That’s never been truer than it is today. You want specific, straightforward guidelines to follow when it comes to demanding money from debtors. You need to proceed aggressively yet legally. You’re looking for a complete guide to abiding by the law, working with debtors, and maximizing your recovery of money. Nothing’s wrong with considering this book as, dare we say it, a training manual.

How This Book Is Organized

This book is divided into parts. Each part is divided into chapters. The following is a summary of what you find in each part.

Part I: Nice Guys Can Finish First: Making Good Use of Credit and Billing Practices

Starting with definitions of credit, the book builds from the ground up. We describe how to establish sound, effective credit policies; creative yet practical policies for extending credit (and alternative solutions where credit extension is denied); and good billing practices, complete with related forms.

The last chapter in this part details the legal stuff (and jargon) you need in order to understand fully your rights and obligations when you collect overdue accounts.

Part II: When Being Nice Isn’t Working: Transitioning from Billing to Collections

How should you react when customer payments slow down — when customers aren’t adhering to payment terms? As payments slow, it’s essential to maintain effective and meaningful communication with your customers to get them back on track. This section explains how to apply increasing amounts of pressure through written communications and collection calls.

When disputes arise, you need to determine whether they’re real or imagined, or interposed merely to stall payment. Chapter 9 explains how to handle slow-paying debtors who create a dispute to justify holding up payments. Chapter 10 guides you through the process of confirming payment plans and getting them in writing to protect yourself if any further stalling occurs.

Part III: When Things Get Ugly: Stepping Up Your Collection Efforts

Highlighting the important distinctions between consumer and commercial claims, this part focuses on moving forward against an obstinate debtor. Should your debtor move and leave no apparent trail as to his whereabouts, Chapter 12 assists you in the process of locating hard-to-find debtors and their assets.

At some point in the collection process, you may consider hiring a professional for asset finding, address location, or continuing the good fight toward collecting from your debtor. Chapter 13 provides the specifics you need to make that determination, as well as detailed information on where to find professional help and what you can expect a collections professional to do for your company.

Wrapping up Part III, Chapter 14 covers what you need to know about bad checks: the different kinds of bad checks and how to deal with them. The section closes with strategies to use when considering taking collection matters to the next level — litigation.

Part IV: Taking a Hard Line: Suing Your Debtor

Taking your debtor to court is a decision that requires knowledge and careful planning. We’ve got you covered. Chapter 15 delves into the details and strategies involved with suing (or deciding not to sue) your debtor. You find out all about courts, including how lawsuits actually work (right down to helpful forms to draw up your own lawsuit), which courts to use, how to handle court hearings, and what’s involved with being a witness at a trial (complete with actual scripts of trial questions and answers).

Are there circumstances where you need to have an attorney? Can you conduct a trial yourself effectively without an attorney? What steps are involved in the litigation process? After you successfully enter a judgment against a debtor, what happens then? You find the answers to those questions and a lot more in this part, which gives you the tools and information you need to venture forth with litigation with a sense of confidence — with or without an attorney.

Part V: The Part of Tens

These chapters, found in all For Dummies books, highlight and encapsulate key points we make throughout the book. From suggestions on how to improve cash flow to tips on avoiding problems with credit and collections, the Part of Tens provides a summary of important concepts.

As you may have noticed, this book comes with a CD that contains over 60 forms and spreadsheets. They’re in Word and Excel formats, available for you to customize and print in accordance with your needs. We also include a short appendix at the end of the book that explains how to install the CD and what’s on it.

Icons Used in This Book

We use icons, the small pictures in the left margins, to draw your attention to important content throughout this book. Here’s what the icons mean:

The Tip icon highlights down-to-earth hints on how to best apply the knowledge you’re acquiring.

The Remember icon draws your focus to important material that helps you when you put theory into practice. When we make key points, the icon says, “Hey, don’t forget about this.”

The Warning icon is just that — a signal that you must exercise care and caution to avoid mistakes or legal pitfalls. Take this icon very seriously, as the field of collections has lots of traps for the unwary.

This icon lets you know that the CD contains a helpful form or spreadsheet that’s right on point.

The Technical Stuff icon highlights material that’s complicated — details that you don’t need to know in your day-to-day collections operations but that you should know if you encounter that particular subject.

Where to Go from Here

A good reference book provides a complete picture of a topic in sufficient detail to be both useful and practical. This book is organized as a progression of events, from setting up relationships with customers to collecting from hardcore debtors. We leave out a lot of theory and background information so you can get right to the how-to info.

Each chapter is a stand-alone discussion of a particular subject. You don’t have to start at Chapter 1 and go forward by any means. In fact, jump right into the chapter or section that interests you the most, and then use the table of contents to find other material to review.

For example:

If you need to know all the law you can get your hands on relating to collections, head straight to Chapter 6.

If you need to hire a collections professional, or even if you’re just considering it, head to Chapter 13.

If you have some slow-paying debtors and need to know how to follow up with them right now, go to Part II for a practical look at bill collecting.

If you’re jumping into a lawsuit with a debtor and want to know what you’re about to encounter and how to handle it, peruse Part IV.

If you’ve lost communication with a customer and fear she may have moved to parts unknown, read Chapter 12.

If you’re holding a bad check — or a check marked “Paid in Full” — and want to know your rights, head over to Chapter 14.

Note: Whoever you are and whatever your current needs, we strongly suggest that you review the contents of Chapter 6 and familiarize yourself with laws that directly affect credit and collection actions. Don’t try to memorize it, but do get a feel for what the law requires. Then, set it aside until you need to know the specifics. For example, if one of your debtors files for bankruptcy protection, grab Chapter 6 and check out your rights and limitations (and a translation of some of the jargon that accompanies bankruptcy).

Good luck, and we’re rooting for you!