Should You Extend Credit to Your Customers?

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In their book Start Your Own Business, the Staff of Entrepreneur Media Inc. guides you through the critical steps to starting your busines.

These days, there are more options than ever for accepting payment. Whether you're in a B2B or consumer-oriented industry, your choices can include extending credit, taking checks, and accepting credit or debit cards. And there are countless ways to accept payments that don’t involve a card—or a cash register. From automatic bank transfers made easy to online services such as PayPal or devices such as Square and other smartphone-based card-payment options, there are many choices.

With so many options, it’s easy for a new business owner to get caught up in the excitement of making sales and to forget the necessity of a well-thought-out credit policy. Deciding what forms of payment you'll accept, how you'll handle them, and what collection methods you’ll use to ensure debts are paid is essential to any small business’ success.

Credit can make or break a small business. A too-lenient credit policy can set the stage for collection and cash-flow problems later, while a creatively and carefully designed policy can attract customers and boost your business’s cash flow.

Many small businesses are reluctant to establish a firm credit policy for fear of losing their customers. What they don't realize is that a consistent credit policy not only strengthens your company but also creates a more professional image in your customers’ eyes.

To establish a smart credit policy, start by investigating the way your competition handles credit. Your goal is to make it easy to buy your products. If your competition offers better terms, they have an advantage. You must meet your competitors’ credit terms to attract customers.

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