Protecting Your Profits by Managing Credit and Collections

This is the 11^th in a series on Starting a Business as Mission Company

NOTE: in many countries, especially those with emerging economies, everything is done on a cash basis. There is no credit offered and there is no challenge with collections. It’s “cash and carry” only. That is changing, however, so entrepreneurial disciple makers need to learn the basics of credit (letting people buy with a promise to pay instead of cash) and collections (tracking what people owe you and getting paid).

What’s the point of making sells if your customers don’t pay you for your product or service? But as any farmer knows, if you don’t manage your resources well, those seeds won’t grow. One critical resource in your business is cash flow. Without it, your business could wither and die. So, let’s talk about how to manage credit and collections in a way that’s practical, sustainable, and aligns with your mission.

Why Credit and Collections Matter

Before diving into the how, let’s briefly discuss the why. Credit and collections are about managing the money owed to you by your customers. If you don’t handle this well, you could find yourself with a lot of sales on paper but no money in the bank. That’s a recipe for disaster. Proper management of credit and collections ensures that your business stays healthy, grows steadily, and remains a testimony to good stewardship.

Set Clear Credit Terms

Why it’s important: Clear terms reduce misunderstandings, protect your cash flow, and demonstrate integrity.

• Be Clear from the Start: When you first engage with a customer, be very clear about your payment terms. This means stating how long they have to pay, any discounts for early payment, and what happens if they pay late. For example, you might offer a 2% discount if they pay within 10 days but expect full payment within 30 days or you may add a 5% penalty on all amounts due after 31 days.
• Put it in Writing: Always document these terms in your contracts or invoices. This isn’t just good business practice—it’s a way of ensuring that you and your customer are on the same page, avoiding any potential conflict. An old Asian proverb says, “The weakest pencil is greater than the strongest memory.”
• Stay Consistent: Once you’ve set your terms, stick to them. Changing terms frequently can confuse customers and might make you look unreliable.

Know Your Customer

Why it’s important: Knowing who you’re dealing with can help you avoid problems before they start.

• Do Your Homework: Before extending credit to a new customer, take some time to understand their business and their ability to pay. This could be as simple as having a conversation about their payment practices or as thorough as running a credit check, depending on what’s available in your country.
• Start Small: With new customers, consider starting with a small credit limit. As they prove themselves reliable, you can gradually extend more credit. This approach minimizes your risk.
• Build Relationships: In many developing countries, business is as much about relationships as it is about transactions. Certainly this should be true of a BAM business. Building strong, personal relationships with your customers can give you valuable insights into their financial health and intentions.

Actively Manage Collections

Why it’s important: Active collections ensure that you get paid on time, which keeps your business running smoothly.

• Send Invoices Promptly: The sooner you send an invoice, the sooner you can expect payment. Make it a habit to invoice as soon as the work is done or the product is delivered.
• Follow Up Regularly: Don’t assume that just because you’ve sent an invoice, it will be paid on time. Follow up with gentle reminders as the due date approaches. A friendly email or a phone call can work wonders.
• Offer Multiple Payment Options: Make it as easy as possible for your customers to pay you. Accepting various forms of payment—whether it’s cash, bank transfer, mobile money, or even barter in some cases—can reduce barriers to payment.
• Be Firm but Fair: If a payment is overdue, don’t be afraid to follow up firmly. However, always approach the situation with grace. Remember, your business is a reflection of your faith, and how you handle conflict can be a powerful testimony.

Managing Late Payments

Why it’s important: Late payments can cripple your cash flow if not handled effectively.

• Communicate Early: As soon as a payment is late, reach out to your customer. Sometimes, all it takes is a simple reminder. Other times, you may need to discuss a payment plan that works for both parties.
• Charge Late Fees: It’s fair to include a late payment fee in your terms, as it encourages timely payment. However, be sure to communicate this clearly upfront.
• Know When to Escalate: If a customer continues to delay payment, you may need to escalate the situation. This could mean involving a collections agency or taking legal action, depending on your local context. Always seek to resolve disputes amicably first, as your reputation as a Christ-centered business is paramount.

Balancing Grace and Business

Why it’s important: As a BAM entrepreneur, your business is more than just a way to make money. It’s a platform for ministry, so how you handle credit and collections should reflect your values.

• Show Grace: There will be times when a customer genuinely can’t pay on time. Maybe they’ve hit a rough patch, or maybe they’re dealing with circumstances beyond their control. In these situations, showing grace and understanding can go a long way in building long-term relationships and being a witness to Christ.
• Be Wise: Grace doesn’t mean being taken advantage of. Be wise in discerning the difference between a customer who’s genuinely struggling and one who’s trying to exploit your kindness. If necessary, seek counsel from trusted advisors or peers who understand your business and mission.
• Use Your Business for Good: Sometimes, offering flexible credit terms can be a way to support a customer in need, especially if their business is also mission-focused. However, make sure this is a prayerful decision, not an emotional one. Your primary responsibility is to ensure the sustainability of your own business.

Staying True to Your Mission

As you manage credit and collections, always remember that your business is a tool for the Kingdom. This means that every decision you make—whether it’s extending credit, following up on a late payment, or dealing with a non-paying customer—should reflect the values of Christ.

• Integrity is Non-Negotiable: Your customers should see you as a person of your word. This means sticking to your terms, being honest in your dealings, and treating everyone with respect and dignity.
• Be a Light in the Marketplace: In many developing countries, corruption and unethical practices are common. By managing your credit and collections with integrity, you’re not just protecting your business—you’re also setting a standard for others to follow.
• Pray for Wisdom: Business decisions can be tough, especially when they involve money. Make it a habit to seek God’s wisdom in prayer, asking Him to guide your decisions and give you the discernment to balance grace with good business practices.
• Rest on Scripture: There are many verses that speak to the issue of paying what you owe. Collecting what people have promised you balanced with a spirit of grace and love is summed up in Psalm 37:21, “The wicked borrow and do not repay, but the righteous give generously.” (NIV).

One Last Caution

In my own experience, the most likely people to take advantage of your gracious and professional offer of credit is…friends and family. It’s very hard to say “No” to a relative or a Christian brother but sometimes, for the sake of your business and its ability to make further positive impact in your community, you must refuse requests for loans, product without payment, etc. If this is true in your case and in your culture, I recommend having another trusted person in your company who can manage these matters for you. It may be tough to say “No” at first but in the long-term, you will be glad you did.

Final Thoughts

Managing credit and collections in a BAM company is about more than just ensuring you get paid—it’s about stewardship, integrity, and using your business as a platform for ministry. By setting clear terms, knowing your customers, actively managing collections, handling late payments with grace, and staying true to your mission, you can build a business that not only thrives financially but also makes a lasting impact for God’s Kingdom.

Remember, the way you handle money speaks volumes about your values. So, let your credit and collections practices be a testimony to the faithfulness and wisdom that comes from walking with Christ.