You Don’t Have a Collections Problem — You Need a Credit Policy

Sep 15

I’ve seen it too many times:

A company is drowning in overdue invoices. Their DSO is climbing. Cash flow is tight. Sales is frustrated. Accounting is frustrated.

And they say the same thing:

“We’ve got a collections problem.”

But here’s the truth. In most cases, they don’t have a collections problem. They have a credit policy problem.

🔍 What Looks Like a Collections Issue...

It usually starts much earlier in the process.

It starts when:

Sales promises Net 60 to close the deal
There’s no credit app on file
No one pulled a credit report or checked trade references
Terms were set on a gut feeling instead of actual risk analysis

And now the account is 90 days past due, there’s no personal guarantee, and the customer is ghosting every call and email.

Sound familiar?

This isn’t just bad luck.
It’s a system failure.

🧱 Credit Policy: Your First Line of Defense

A strong credit policy defines:

What’s required to open an account
How credit limits are set
What terms can be offered (and who can approve exceptions)
When reviews happen
What triggers a hold or escalation

It sets expectations internally and externally.
It gives your credit team a foundation to stand on.
And most importantly — it prevents bad debt before it happens.

⚙️ Credit Policy = Cash Flow Control

When you get the credit process right:

You reduce the number of accounts that ever require collections
You extend terms strategically, not emotionally
You stop chasing down customers that never should’ve been approved in the first place

In other words, you fix the leak before you mop the floor.

🧠 Mean Gene's Rule of Thumb:

If you’re spending all your time chasing payment,
it’s probably because you didn’t spend enough time evaluating credit.

I’m not saying collections isn’t important — it absolutely is. But if 80% of your accounts are going past due, it’s not because your collectors aren’t trying hard enough.

It’s because someone approved the wrong customers under the wrong terms — or without any guardrails at all.

💬 Conversations That Should Happen Before the First Invoice

What’s the customer’s actual payment history — not just what they tell you?
Do we need a signed credit app or personal guarantee?
Is this customer in a high-risk industry or geographic market?
Are we setting realistic expectations with the sales team?
What’s our process if they start to slip?

If you don’t answer those questions upfront, you’ll be answering them under pressure 60 days later when no one can get a response.

🎯 Final Thought

If your AR team feels like they’re always behind, always chasing, always scrambling — stop blaming the back end.

You don’t need a tougher collections team.
You need a smarter credit process.

Put the policy in place.
Stick to the playbook.
And give your team the structure they need to win before the invoice ever goes out.

Gene Clark