Credit Policy Jams

Did someone say it was International Burger Month? Or is it just that we’re developing a taste for something exotic? In any case, here’s a little slice of Credit Policy Pie that is easy to digest.

Let’s be straight up about this: writing (and thinking) about Credit Policy is akin to eating dirt UNLESS we add some secret herbs and spices.

OK, we understand that you have a Credit Policy somewhere in that filing cabinet/drawer/windows folder etc., it’s just that you never really get around to looking at it (yes, even if you are a Major Global Player).

This stuff is just compliance nonsense and you know the rules and ropes so why should you be worried about this?

That’s a great question. Do you like pickles on your Big Mac? Well think about getting out of these little credit jams: –

1. You have just received a preference claim from that Liquidator who you clashed with when he was the Administrator and he disagreed with your dodgy legal arguments. He says you knew the company was in strife because you continually let the account run well past its limits until finally you got paid after many demands. Heartburn takes over as you realise, he might be onto something.

2. You allowed your Customer to exceed limits but only because Scotty from Sales (Marketing?) said the CFO was onboard with it. When the account went belly up, Scotty couldn’t remember what he said (just like that Married At First Sight wannabe who said he couldn’t remember making out with someone else’s fake wife). To make matters worse, your memory is not much better. Damn that food coma.

3. A “cash account” has suddenly popped up on the ledger as overdue. What? How can a cash account become overdue? You then realise those friendly chaps down at the front delivery desk have been conned by a Mr Fastbucks into opening a “cash account” on the spot so he could get his goods there and then. Where’s that stiff drink when you need it.

4. A good account you have been unusually chasing for weeks finally responds with an angry email. “Jenny said she had changed my account to 90 days” it says (IN CAPITAL LETTERS). Wow, he is burnt like a Bunnings sausage, as indeed you are too when you realise he is correct. Jenny confirms she forgot to tell you in the rush to get the order fulfilled, she didn’t want the team to be seen as the place where sales go to die.

5. A long-standing Customer advises you that they have “restructured” 6 months ago but didn’t get around to telling you. This is a problem because you now need to tidy up the account and work out who your Customer is. The Customer complicates things by also announcing they are “too big” now to give personal guarantees and indemnities. You gag when you see the amount outstanding is way over terms and days.

We could keep mincing this meat but let’s be clear. A well thought out Credit Policy can help you in all these day-to-day events of your life in Credit. How so? See below.

Credit Policies – A Recipe for Success

1. If your Policy had provisions in it that allowed you to support Customers by extending terms or limits to help them grow their business, you could argue that you were just following the Policy guidelines. Yes, the account was “seemingly” out of whack, but the Policy allows for that event. It may not be enough on its own, but it will certainly help your argument that these types of events are part of the ebbs and flows of business and you have Policy provisions in place to cater for those Customers. You can say to the Liquidator “Nothing to see here, move along to the next food truck”.

2. Your Policy should outline the process for approvals, extensions, restrictions and termination of the privilege of Credit. A literal menu showing who can approve what and how the process is documented. That will deal with items 2 and 4 above. All you need to do is reinforce the practices by regular training (did someone say KFC? Why not share some nuggets of wisdom with the Sales Team so they know the process too?).  

3. Which brings us to those pesky “cash accounts” that get caught in your throat and make you swallow hard. Your Policy can set out the process for opening accounts, which type of account and who has the authority to do it, etc. Send these back to the kitchen for reheating, refresh the menu and don’t ever let them be served up again.

4. And what about our “re-structured” Customer? If your Credit Policy provided that your larger value or higher risk accounts were constantly monitored, then that early warning tsunami system could work wonders for you. There’s nothing worse than being the last one at the table to be served, everyone else has had their fill and you are left with the scraps. Monitor your accounts, get notified whenever there is any change, it’s easy and incredibly useful.

So, if you need some help, here are our Chef’s signature dishes: –

• Have a look at our first article on developing your Credit Policy.
• Why not make the review or creation of your Credit Policy the soup de jour? This can be a team effort – get the crew together and get them excited about this culinary delight. You can share ideas over lunch and everyone can feel catered for. Who doesn’t enjoy a good family nosh up with some lubricants thrown in to wash it all down?

A Credit Policy might not be everyone’s cup of tea, but one thing is for sure. If you haven’t looked at yours for some time, or you just don’t have one, then sadly, the day will come when you might get your just desserts.

Need help? We have dined out on Credit Policies for many years, reach out if you think we can assist.

Learn more about Credit Policies

About the authors

Terry Ledlin is Special Counsel of Ledlin Lawyers, a boutique CBD law firm with 50-years of experience specialising in Credit Management and Collections, Commercial Litigation, Insolvency and Commercial Documentation. Terry is a practical and experienced lawyer who has worked with government agencies, private and publicly listed national and multinational companies across many industries. His speciality is helping to solve complex commercial issues. 

Holly is a Lawyer at Ledlin Lawyers. At 6ft2 tall, the number one question Holly gets asked is, “Do you play basketball?” The good thing is, she’s a better lawyer than she ever was a basketball player. Holly takes advantage of her height in commercial litigation and dispute resolution, where a certain presence can often be key on and off the court (room). With her commercial approach, “slam dunks” are something Holly truly enjoys striving for in credit management and insolvency. Even on the bench, Holly is well-versed in great letter writing, drafting commercial contracts, and providing valued advice with the team at Ledlin Lawyers.