SME Community: Strategies for Credit and Collection

Updated: September 27, 2014

Leveraging on credit is a practice that entrepreneurs and business owners are familiar with.

We borrow money to fund our business ventures and conversely, we give payment terms to our customers to get more sales and foster a better relationship with them.

But in light of the recent global recession, effective credit and debt collection management for businesses has never been more important.

There’s a need for us to be more conscious and conservative when acquiring loans and buying on credit. Furthermore, a more meticulous evaluation of our client’s financial standing must be done before extending credit to them.

When it comes to credit management, what are the things that small business owners must remember to avoid missing payments and incurring unnecessary interest charges and fees from their loans and credit? Here are some tips:

Don’t use your personal credit cards for your business expenses.
While most small business owners use their personal credit card to cover for business expenses, it’s smarter to apply for a separate business credit card for such purposes to prevent your personal credit score from getting affected when payments from clients get delayed.

Monitor your finances regularly.
A business owner should regularly monitor both his business and personal finances. When the business is not doing well, one’s personal lifestyle should adjust accordingly to avoid incurring bad personal debt.

Avoid using personal assets as collateral for business loans.
Don’t use your house or other personal properties as collateral for your business loan. Instead, use the assets of the business. If you really must, make it as a last resort. Nothing is ever sure nowadays and the last thing you want is to lose both your business and your house.

But consider selling your assets in order to make loan payments.
If the business is finding it hard to make loan payments, consider selling some of your personal assets to cope. You can alternatively do freelance work and find ways to make extra income to help the business financially.


On the other side of the coin is debt collection management. How can businesses collect their receivables on time? What can you do to speed up and improve your debt collection? Here are some guidelines:

  • Check how your client is doing before extending credit or giving them payment terms. Even if they are already long-time customers, do your due diligence before finalizing your deal, especially when the account involves a large sum.
  • Make sure that your sales documents are thorough and comprehensive. A well-written credit agreement or sales contract will increase the likelihood of your client to pay on time. Furthermore, it can make the litigation process of debt collection easier for you.
  • If the transaction involves a large sum, it may be wise to negotiate for collateral in your sales contract to protect yourself in case the client fails to pay. If your customer is confident that he’ll make the payment, then giving collateral won’t be much of a problem for them.
  • When you sense that a client might delay payments, make a service call to ask feedback on the products you delivered or the service you rendered. When you treat them as a preferred customer, they’ll more likely to prioritize you in their payments.
  • It’s good practice to regularly remind them of their obligations, especially overdue accounts. Send written notices and make friendly calls to remind them of their payables. However, set an absolute deadline for the collection and be sure that they are aware of that date.
  • When the client fails to pay on your absolute deadline. Then it may be time for you to hire a collection agency. Lastly, consult a lawyer first to get a clear picture of the litigation process just in case you”˜re planning to take legal actions on the matter.

This article was written by me and originally appeared in the Vol. 4, No. 1 issue of SME Community Philippines. This is a free magazine distributed by Planters Development Bank as part of their advocacy for SMEs.

You may visit their branches to get a copy or you can download a digital version of this issue here.

If you want to receive more business development strategies and tips, please consider subscribing to Ready To Be Rich. Thank you.

Photo courtesy of adanmoctezuma


  1. if you are afraid to risk your own properties, it simply means you are risk averse and does not have faith in your own business viability.
    like most filipinos…

  2. I think one way of protecting yourself if you have a business is by incorporating your business as a partnership (LLC) or a corporation. of course, that would also be a problem because you still have to look for other partners and incorporators.

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