Providing credit to customers is a vital small business success strategy. This entices your target audience to at least consider your products over the competitors’.
However, this approach can also backfire if not implemented correctly. A few customers may fail to pay or pay late. Delinquencies and non-payments cause cash flow problems that may result in the closure of your small company. Your business can still benefit from providing credit to customers as long as you have a credit and collection policy in place.
Here’s what your policy should include.
Maximum Allowable Credit
Big businesses implement a credit limit on their customers. This is a practice that small business owners can use as well. Determining the maximum amount a customer can get is a good business practice and is important to cash management. This inclusion protects your company and keeps cash flow going. It also funds account receivables which you can use for immediate financial obligations.
Terms and Conditions
When you create a credit control policy, make sure to clearly state its terms and conditions. This includes:
- Due date of payment
- Fees incurred for late payment
- Penalties and actions taken for non-compliance.
- Guidelines for possible extension of credit
Collection System
This explains the actions you will take for delinquent or non-payments of customers. This can include sending of invoice/s, letters, calls or possible legal action for prolonged non-payment beyond the due date.
These should be a part of your credit and collection policy. Doing so protects your small business from possible cash flow problems.
The Benefits of Providing Credit to Customers
Offering credit to customers has its benefits but also comes with risks. However, the risk is worth it because of the advantages it provides. It keeps your small business competitive with competitors that are already offering credit to their customers. A credit payment option increases the possibility of more sales because a customer can buy more items. This also makes it convenient for your customers to pay which then improves your business relationship with them.
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