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Home > Operations Management Checklists > Building an Efficient Credit and Collection Accounts System

Operations Management Checklists

Building an Efficient Credit and Collection Accounts System

Checklist Description

This checklist outlines why you need efficient credit and collection accounts and some ways of setting them up.

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A credit account relates to credit extended by a business to a customer, which may be another business. A collection account is an account that is in default of the contractual terms (i.e. has passed the due date). It may be assigned to additional collection efforts by the creditor, or passed on to a professional collection agency.

Overdue credit accounts and nonpayment of accounts receivables have an adverse impact on a company’s solvency and restrict its dealings. Legal proceedings against defaulting customers cost money and use resources. In addition, they have a detrimental effect on business relationships.

Small businesses must have proper credit and collection policies. Such policies allow a business to collect what they are owed more efficiently from their customers. Good policies help to ensure that a company’s customers pay on time or in full. They also help a company to avoid bad accounts, or ditch customers when their accounts turn bad, and keep cash flowing into the business.

As consumer debts increase, competition grows, and interest rates rise, companies are looking at new ways to improve collection rates. Technology is increasingly playing a role in this. Many companies now expect customers to settle debts electronically via BACS (bankers’ automated clearing service) transfer, for example, which is cheaper and faster than clearing checks. internet banking now also enables direct debits to be set up quickly. Many companies are also using dedicated software to manage their credit and collection accounts, which reduces dependence on staff or external collection agencies.

The fact is that some debtors fall behind with payments because they can’t pay. In such a situation it is better for a company to try to match settlements to the debtor’s ability to pay. Slow payment is better than no payment. Information from credit reports and account activity should enable collectors to make better decisions about what payments might best suit a debtor’s circumstances.

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  • Effective collection of debts improves cash flow and helps to grow the bottom line.

  • A well-organized credit department can make informed decisions about bad accounts and offer credit only to verified customers.

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  • Implementing credit and collection policies can be expensive, at least initially.

  • It can also seem like a lot of effort for something that a company hopes to receive without such measures.

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Action Checklist

  • Analyze your good and bad debtors.

  • Keep a close watch on your cash flow.

  • Ask your debtors if they will be able to pay on time.

  • Indicate penalties for late or nonpayment.

  • Issue a reminder at the end of the payment period.

  • Investigate software options.

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Dos and Don’ts


  • Chase up all bad debtors.

  • Try to match payment schemes with a debtor’s ability to pay.

  • Consider the use of technology to improve your collection accounts.


  • Don’t pretend it won’t happen. Bad debtors are a fact of business life.

  • Don’t ignore bad debtors—keep on top of them.

  • Don’t become a bad debtor yourself as a result of your own bad debts.

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Further reading


  • Bond, Cecil J. Credit Management Handbook: A Complete Guide to Credit and Accounts Receivable Operations. New York: McGraw-Hill, 1993.
  • Schaeffer, Mary S. Essentials of Credit, Collections, and Accounts Receivable. Hoboken, NJ: Wiley, 2002.

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