Should You Offer Credit Terms to Your Customers? EBC

payment methods

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In certain circumstances, especially if you’ve just started your business, you might want to start taking orders as fast as possible and leave the credit checking process till later. These details should be enough to allow you to conduct a thorough credit check on your potential customer before you offer them any lines of credit. Offering your customers the option of lines of credit as a payment method is a great way of opening up new business opportunities. Now, with the ongoing pandemic from COVID-19, the issue of extending credit is more relevant than ever, with many customers requesting credit.

Small Business Financing Options with Debt

If the customer was late, did he or she communicate with the creditor openly and early on and try to arrange a payment plan? Obtain bank account information and ask about any credit arrangements customers may have with other suppliers. You can also run credit checks via Dun & Bradstreet for a small fee. For companies in many industries, offering supplier credit is part of the price of doing business.

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The credit policy should also include guidelines for collections of outstanding A/R. Determine what would constitute a delinquent A/R and what happens then. For example, a payment reminder or a telephone call after a week or two of a past-due A/R may be the first step to prompting a delinquent customer to pay up.

Collaborate with your customers over the cloud

The credit choices you provide will also be determined by the type of business you run and the customers you have. Make your decision by understanding the fundamental rules of credit policy, and forms of credit you’d like to extend. Sorting customers into different risk categories based on credit data (i.e. low, medium, high) is another simple way.

  • If you hire a collection agency to get the customer to pay their bill, you will have to pay a collection fee.
  • For starters, you’ll avoid miscommunicating payment terms to your clients and set payment expectations transparently, improving your business relationships.
  • According to NACM, companies should take into account the anticipated purchasing volume, payment history with other vendors, financial statements, the customer’s market and industry.
  • How far your terms differ from those of your suppliers will have an impact on your cash flow.
  • It is also useful to check if your company has sufficient solid financial reserves in case of complications with a bad payer.
  • The more robust your credit policy, the easier it is to safely extend credit to your customers and prevent delinquencies.

Learn how Versapay helps credit and collections teams drive efficiencies, accelerate cash flow, and dramatically improve customer experience. In the current economic climate, credit management is more important than ever. Your credit policy sets the tone for your credit management processes and aligns your finance teams around important organizational goals. Versapay’s intuitive dashboard helps you easily track open receivables, highlighting your customers with the most outstanding invoices. This saves your credit manager the time and trouble of retrieving this information from multiple sources.

Components of a credit policy

You can for example establish an automated reminder process to remind clients of their payment obligation. Always make sure you invoice as soon as possible and ask your client to acknowledge receipt. Make a note of the invoice details and follow-up with your client as the due date approaches, rather than waiting until it’s overdue, particularly with invoices for large amounts.

  • The aging report of all invoices must be kept updated on a daily basis by the billing clerk.
  • The credit staff is tasked with instructing customers regarding their payment responsibilities.
  • Achieve your business funding goals with a proven plan format.
  • If they miss the payment deadline, keep up the dialogue and ensure they understand that you won’t accept non-payment.
  • If it isn’t realistic to require a payment upfront, consider asking for a deposit.

You may want to outline some of the tools your team can use to make a sale when a customer has poor credit, like a UCC lien or personal guaranty. We envision a world where no one in construction loses a night’s sleep over payment. Paychex was founded over four decades ago to relieve the complexity of running a business and make our clients‘ lives easier, so they can focus on what matters most. If you are looking to outsource Paychex can help you manage HR, payroll, benefits, and more from our industry leading all-in-one solution. Because you don’t have to worry about sending these notices out yourself, you avoid missing critical windows when customers are most likely to respond to reminders .

This is especially true for new businesses and professional services providers, who can’t always demand “cash on the barrel” for products sold and services rendered. Consider your cash-flow cycle and business goals, as well as the size of the potential deal, your relationship with the customer, and the potential sales they could bring moving forward. Is it more important for you to be paid quickly or to extend more lenient terms that could facilitate a long-term relationship and ultimately generate more revenue? By documenting this criteria, it will be easier to keep emotion out of the decision-making. You should also specify which types of customers and sales are covered by your credit policy. Some credit restrictions, for example, only apply to domestic sales to enterprises of a specific size, while others only apply to overseas customers.

paid on time

This can be a good choice for service providers who want to guarantee payment before they get started on the work. When you send a new invoice to a customer, it should include all the information they require to pay you accurately and on time. Risk, in this context, is how much credit you are willing to offer a customer based on the information you have about their financial situation.

Require a credit application

First, Establishing Credit Terms For Customers worth asking yourself a handful of questions so you set the stage for implementing clear goals that your credit policy will tackle and address. Jamie Johnson is a Kansas City-based freelance writer who writes about finance and business. Jamie has written about a variety of B2B topics like finance, business funding options and accounting.

The more robust your credit policy, the easier it is to safely extend credit to your customers and prevent delinquencies. Good credit policies also help you screen customers for financial suitability before onboarding them. A credit policy sets a business’s terms for offering credit to customers and collecting payments. When you are negotiating terms with customers, don’t forget that providing credit costs you money. If you have a positive cash position, you will be losing bank interest on outstanding invoices.

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