Best Practices for Getting Paid

This is the fifth installment in our series, "Establishing Best Practices for Extending Credit in Today's Economy." In our previous blog posts, we discussed getting organized to offer credit to your customers, best practices for processing credit applications and creating credit agreements. In this blog post, we will focus on best practices for ensuring payment. Strategies for Getting Paid There are several common forms of payment that businesses accept." Cash is always a welcome form of payment, though a poor choice for debt repayment because of potential theft and control issues with staff." Accepting checks is also a poor payment method for debt repayment because of identity verification and NSF risks." However, it is a common approach for manually run payment plans." In these situations, the business obtains a series of checks from the customers representing the total number of payments to be made and then each month deposits one of the checks as payments come due." While this might seem like a simple approach, the risk can be high." Future checks could bounce and incur NSF fees for the business and cause collections issue." Also, the staff has to remember to deposit each check on time and keep the other checks secure from theft. Accepting credit or debit cards as payment are a more effective payment option, but carry a higher transaction cost for the business." Merchant fees associated with credit and debit cards can range from 1.5 percent to 6 percent of the transaction amount." Even under this approach, the business still needs to remember to process the payment each month and deal with failed payments due to expired credit cards or insufficient credit available." Most businesses know that manually reconciling credit card transactions is [...]

2016-10-29T16:36:45+00:008:36 am|

Best Practices for Handling Missed Payments and Defaults

This is the sixth installment in our series, "Establishing Best Practices for Extending Credit in Today's Economy." In our previous blog posts, we discussed getting organized to offer credit to your customers, best practices for processing credit applications and creating credit agreements, and ensuring payment. In this blog post, we will focus on best practices for handling missed payments and defaults. Strategies for Handling Missed Payments and Defaults While automating the payment process using electronic debit to a borrower's bank account greatly reduces the risk of payment default, missed payments still occur and can lead to loan defaults. So given that we followed best practices during the application process and are using automated payment processing, what steps are recommended for handling missed payments? Automated payments fail for a variety of reasons. Assuming payments are made via ACH, a payment may fail due to insufficient account funds a closed account . Generally, sending a payment reminder to the borrower prior to each payment due date will ward off these issues before they occur; but when they still happen, it is best to immediately contact the borrower to discuss the missed payment and agree upon corrective action such as an immediate payment to get back on track. Taking manual payments to correct a missed payment forces the issue with the borrower. They have to respond to your request by either coming into your office with a payment, authorizing an immediate debit of their bank account, or providing you with a credit card for payment. If they decline to correct the situation immediately by seeking a delay in payment or declining to honor the payment agreement, you know that you have a more serious potential default situation. Even in [...]

2016-10-29T16:36:45+00:008:13 am|

Creating New Payment Plans – Part 2

This is the fourth installment in our series, "Establishing Best Practices for Extending Credit in Today's Economy." In our previous blog post, we discussed strategies to consider in developing your customer credit program. One of these is deciding which procedures or types of transactions to include in the program and what types of customers will be eligible for credit. In this blog post, we will focus on the second part: deciding which types of customers will be eligible for credit. Strategies for Assessing Credit Risk When it comes to deciding who is eligible for extended payment terms and who is not, the decision should be based on a defined business strategy for offering credit and then on criteria that is consistently applied to all applicants. First, let’s discuss strategies for offering credit. A properly designed credit program serves a business purpose. This may be to stimulate sales, provide a financing option to customers, or supplement an outside financing program. Within the context of the business purpose, a decision should be made regarding how much credit risk is acceptable. For example, if the business purpose is to stimulate sales of a service, but stringent criteria are set for credit approval, the business may find a higher than desired percentage of applicants is declined. On the other hand, setting more lenient credit criteria may result in higher missed payments and bad debt situations. That said, it may be acceptable if the service is highly leveraged in terms of cost of sale, and the increased business volume generates additional profits that justify the bad debt dollar risk. Credit risk should be assessed based on the business purpose and should be well understood prior to commencing the program. The business [...]

2016-10-29T16:36:45+00:008:30 am|

Creating New Payment Plans – Part 1

This is the third in our series, "Establishing Best Practices for Extending Credit in Today's Economy". In our previous Best Practices’ blog post, we discussed the value of developing a written plan for extending credit and formalizing the credit process. As part of developing an overall strategy behind offering credit to your customers, you should decide which procedures or types of transactions to include in the program and what types of customers will be eligible for credit. In this blog post, we will focus on the first part: deciding which procedures or types of transactions to include in the program. Leveraged Transactions Leveraged transactions or procedures of all sizes are good candidates for selling on credit terms. Why? Because the fee you charge is high compared to the hard cost you incur to provide the service or procedure. Couple this with requiring a down payment and/or charging interest over the term of the payment plan, and lending risk can be minimized or eliminated, while growing the business and generating a high level of wealth creation for the owner(s). Let’s look at an example from the dental market and also compare this to the results you obtain using outside of third-party financing. To start, outside financing may seem attractive on the surface because the dentist gets paid immediately. If the need for immediate cash flow is critical to the dentist, an outside financing program is an option that should be considered. However, the dentist does take a discount on their fees and the lender will only approve certain patients. Also, only certain procedures are eligible for financing often at less than 100 percent financing. As a result, the dentist's revenue potential from the highly leveraged procedure is [...]

2016-10-29T16:36:45+00:008:15 am|

Getting Organized to Extend Credit

This is the second in our series, "Establishing Best Practices for Extending Credit in Today's Economy". According to a 2008 survey conducted by GfK Roper Public Affairs and Media, when faced with a medical expense over $1,000, one out of 10 people surveyed stated that they would seek a payment plan/monthly payments from the service provider to help in paying the expense. This was before the impact of the credit crisis was really felt by the general population. Today, one can assume, if asked the same question again, that a higher percentage of people would seek payment assistance in the form of a payment plan. If your business recognizes the need to extend credit terms to your customers, you probably also realize that it would be a good idea to have a plan in order to execute successfully and avoid unnecessary repayment risk. There are several areas to consider when getting organized to extend credit. In this blog post, we will highlight "best practices" to assist you in successfully extending credit to your customers. Develop a Written Plan A plan defines the goal behind offering credit terms, a roadmap for everyone to follow in executing the plan, as well as the metrics to measure its success. Putting it down on paper forces you to really think about what is involved, offers you the ability to get valuable feedback before implementing, and the ability to share it with everyone on your team. This ensure that it is properly executed. Understand Lending and Privacy Compliance Requirements Extending credit terms is lending and is, therefore, subject to a number of state and federal consumer lending and privacy laws and regulations. It is a best practice to seek out professional [...]

2016-10-29T16:36:45+00:008:32 am|

The Need for Extending Credit is More Important Than Ever

This is the first in our series, "Establishing Best Practices for Extending Credit in Today's Economy". Successful businesses in elective healthcare, dental care, and veterinary services use customer financing to maintain and grow their sales. Like accepting different forms of payment, such as credit cards, extending credit is becoming more popular as another method to help close a sale, while enabling customers to financially secure services they would otherwise not be able to afford. Unfortunately, given the current tighter credit standards and the increase in consumers with FICO scores under 650, access to consumer financing has become significantly limited making the financing that is available more expensive for these businesses. For example, approval rates for traditional financing through credit cards or lending institutions have seen a significant double-digit decline causing many consumers to forego non-essential elective healthcare services and creating a significant revenue decline for elective healthcare providers. The credit crisis has also impacted many other B2C industries, such as education, legal, home improvement, luxury goods & services, and others that suffer from the lack of effective third party financing. DIY - extend your own credit The choice for many businesses is between offering their own payment terms or doing nothing, forgoing the much-needed revenue and crossing their fingers that the economy will improve soon. As a result, many businesses are now turning to extending credit via internally funded payment plans as a way to close the gap and create a "win-win" for their business and their customers. Extending credit through payment plans is hardly a new concept. For many types of businesses this is an accepted and well-understood practice that has helped them grow their sales and maintain customer loyalty. And, importantly, steady cash flow. [...]

2017-01-18T18:02:04+00:008:10 am|