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In today’s economy, cash flow is very important for any growing business. But what happens when late payments, poor credit policies, or unvetted customers threaten your ability to operate smoothly? Issues….big issues can happen and you won’t spot them until it’s too late.

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Whether you're just starting to build your credit and collections policy or you're overdue for a process overhaul, this week’s newsletter breaks down exactly how to:

• Analyze New and Existing Customers

• Reduce Credit Risk

• Boost Cash Flow

• Establish Clear Internal Policies that Protect Your Business

Let’s dive in. Special offer this week as well located at the end…👇 Even if you aren’t ready to utilize our services, maybe someone you know is. Share this for me, it doesn’t cost a dime!

✅ 1. How to Analyze New Customers Before Extending Credit

Before you hand over a product or service on credit, take a moment to truly assess the risk. Every new customer relationship should begin with a solid foundation of credit analysis. Most of you are saying, “Brad, this isn’t a big deal for me and we don’t have issues.” That may be true now, but I can tell you from 15+ years now in the Finance world that now more than ever this is a year to protect and analyze this area in your business.

🔍 Credit Assessment Checklist:

• Business Credit Reports: Pull reports from agencies like Dun & Bradstreet, Experian, or Equifax to check payment history, public filings, and overall creditworthiness.

• Bank & Trade References: Ask for and actually call references to get real-world insight into how they pay their other vendors.

• Years in Business & Industry Health: A new business might need tighter terms. Consider their track record and the volatility of their industry. When I say “tighter terms” I am meaning not Net 45 or 60. Maybe Net 30 or even Net 10 or 15.

• Legal Structure & Ownership: LLC, S-Corp, Sole Proprietor? Understanding the entity helps determine liability and enforcement avenues.

🧠 Pro Tip:

Use a credit scoring system (scale of 1–10) to make your decision process consistent. Automating this step makes it easier for your team to stick to policy.

🔄 2. Re-Analyzing Existing Customers is Non-Negotiable

Once someone’s in your system, it’s tempting to assume they’re “good to go.” But circumstances change. Regular reviews are a must.

🔁 Ongoing Credit Review Strategy:

• Payment Pattern Analysis: Are they gradually taking longer to pay? That’s a red flag.

• Credit Limit Usage: Consistently maxed-out limits can signal upcoming problems.

• Financial News or Legal Notices: Stay alert for public signs of distress.

• Scheduled Reviews: Build 6- or 12-month review cycles into your CRM system. I suggest annually for low risk and 6 months for high risk customers.

📊 Bonus Tip:

Segment customers into risk categories (Low, Medium, High). Apply different follow-up strategies accordingly to optimize team time and reduce risk. If you don’t use an ERP system and just rely on Excel, color coating can truly help you here and a basic dashboard (message me and I’ll hook you up!) is crucial.

💸 3. Reducing Risk Before It Becomes a Problem

It’s not about saying “no” to business—it’s about saying “yes” strategically. Here’s how to limit your exposure without scaring away clients.

🛡️ Risk Reduction Tactics:

• Personal Guarantees: Especially for small or new businesses, this gives you legal recourse beyond the company itself. If they are a subsidiary of a larger corporation, this is where a parent guaranty comes into play. Ask for it.

• Deposits or Prepayments: For high-risk clients, require a % down before work begins. Normally 50% is a good starting point. See how they respond to this which may tell you all you need to know on extending actual credit.

• Credit Insurance: Protects your receivables from default (especially helpful in international trade). I know a great company and individual if you are exploring credit insurance. Check out Allianz Trade or reach out to Matt Allison.

• Tiered Credit Terms: Start conservatively—Net 15 or Net 30—and adjust upward over time as trust builds if you are trying to secure and maintain a large client. I would say though, you want paid quickly so don’t just extend longer terms to someone for no reason. This is a cost to your business as well when cash is tied up.

💰 4. Boosting Cash Flow Without Chasing Clients

Collections doesn’t have to mean “aggressive.” It means intentional communication and systemized processes that keep money moving.

💼 Cash Flow Enhancement Tips:

• Invoice Immediately: Don’t wait. Send invoices as soon as the product/service is delivered. Too many small businesses batch invoice and then wonder why they may struggle to meet payroll.

• Clear, Friendly Reminders: Automated emails at Day 7, Day 14, and Day 30 are your best friends. You have to make sure there aren’t issues BEFORE the invoice is due. If your first contact to them is AFTER the invoice is due, this isn’t the best approach for you to take. Actually….it’s the wrong approach in my eyes!

• Early Payment Incentives: Offer 1-2% discounts for payments within 10 days if your business can float a discount. There’s a simple calculation we can do for you as well to help confirm that offering a discount makes sense for your business.

• Late Payment Penalties: Clearly stated interest or fees can motivate faster responses—just ensure this is compliant in your state and within your T/C’s.

📈 Collections Flow Framework:

1. Gentle Nudge (Day 7): “Just checking in…”

2. Firm Reminder (Day 14): “Invoice is due—let us know if you need help.”

3. Escalation (Day 30+): “Payment is now past due. Please reach out today.”

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📝 5. Creating Policy & Procedure That Your Team Actually Follows

Your policies should be useful, clear, and enforced. A dusty PDF no one reads won’t save your company from a cash flow crisis.

📘 What Every Credit & Collections Policy Should Include:

• Customer Onboarding Flow: Who pulls reports, who approves, what docs are needed?

• Credit Limits & Terms Matrix: Guidelines based on risk level and payment history.

• Collections Timeline: Day-by-day actions and templates for the team to follow.

• Escalation Protocol: When to involve management, legal, or third-party collection agencies.

• Dispute Resolution Guidelines: Who handles disputes, how they’re tracked, and time frames for resolution.

🔧 Team Training Tips:

• Quarterly Workshops: Keep your team aligned on updates and new tools.

• Shared Dashboards: Let team members see real-time AR aging and contact logs.

• KPI-Driven Accountability: Reward reduced DSO (days sales outstanding) and clean books. If you can offer a bonus, I’d consider this to drive in cash for your business. Make sure though that the bonus is paid out on solid results that aren’t just a drop in the bucket for your team to achieve.

🎯 Your Credit & Collections Strategy is Your Competitive Edge

When you have a system in place that protects your revenue and empowers your team, you don’t just collect money—you build trust, maintain cash flow, and grow your business sustainably.

💼 Ready to Transform Your Credit & Collections Process?

At Guernsey Consulting LLC, we help businesses build bulletproof credit systems, reduce financial risk, and supercharge cash flow.

✅ Customized credit policies
✅ Team training & workflow automation
✅ Customer analysis frameworks that scale
✅ Collections strategies that work without burning bridges

🚨 Special Offer:
Get 10% off all services booked before April 30, 2025 — just mention this newsletter or email [email protected] today to lock in this deal for your business.

📲 Visit guernseyconsulting.com to schedule your FREE discovery call now.

Some of you are aware I’m out of the office this week! We are on vacation and are getting some much needed R&R with the family! Here’s Monday night’s sunset that I know some of you will enjoy!

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