Factors To Consider Before Extending Credit To Customer

Doing business today can be quite tough due to reasons ranging from lack of customers to competition from other business that deals with similar products or services as you. Small and large businesses are all on the look out to try as much as they can to increase sales and maximize profits. Giving out credit to customers is an ideal way to increase sales as well as create a good relation between you and the customer. Businesses that offer credit services to their customers have recorded increase in sales of up to 50 percent. This means that the customer can take goods and pay on a later date as agreed.

Factors to consider

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Before giving out credit to you customers, you should be able to know the amount of risk your business is willing to take and handle when issuing out credit your customers. Ensure that your business is stable enough to take up such a transaction; this is because most credit offered to customers usually end up being unpaid resulting to losses or even closer to businesses.

Credit terms

Make an agreement with you customer about the amount you are willing to spend, and the duration it is going to take for it to be paid back. Gauge the amount you are willing to give out and ensure it won’t stall the normal flow of business until you get paid. Credit can take between 5 days to several months as agreed upon by both parties.

Credit qualification

Before extending credit to customers, it is essential that you determine their creditworthiness. This is important because it increases the chances of you getting back the money that you have issued out as a credit to the customers as credit. Start by running a background check on them. Request for simple things like credit application references or run a check with consumer credit agency to pull out important information concerning your customers.

Credit policy

trsefegrfgvCreate a credit policy that pulls all the process of applying, issuing, submission and collection of all credit related activities so as to be able to plan ahead. This will save you time, and other hustles as everything will be clearly drafted. This can be done by a hired skilled personnel or use the available staff you already have from an accountant to bookkeepers to help with all the processes.

Credit review

Keep a track record of customers and the amount you offer them regarding credit and review them later. This will guide you when intending to increase the amount of credit, which you are willing to give out to your customers, as well as monitoring customers that pay up on time to increase their level of credit upon their request.

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