Do you use them? Sometimes, all the time, selectively? Perhaps you as a business owner do not extend credit to your clients and you are perhaps wondering why it is important.
For starters, extending credit is when you provide a product or a service and not expect payment for a given amount of time (usually 30 days and this would be called Net30 terms). Many companies are doing it and with good reason. Not only does it increase the sales of their product, but it also presents a very good image to your client. It does this in two ways:
1. click here Financial Reputation – when you give customers more time to pay for a service or product, then it lets them as well as other businesses know that you are in a good financial state. If your business has steady cash flow and good access to your capital then you should be more than capable of extending this credit.
2. click here Product Reputation – perhaps you as a business owner might be reluctant to hand over any product without payment. After all, what if they take your product or service and then just not pay because they are not happy with what was sold to them? When you extend credit to your customers, it tells them that you are fully confident in the quality of the product you are selling.
Extending customers credit also helps ensure customer loyalty making them want to come back. They will come to your place of business over those that don’t offer them credit for a product or service.
These are just a few advantages of extending credit, but if you want to do this properly, there are also a few things you need to make note of. To begin with you have to know what to include in a business credit application. After all, there will always be the potential risk of customers not paying at the required time (or not paying at all!), but by following these steps you can make this less of a problem.
After you have received the signed application from you customer, you need to make sure all the information is correct. Verifying trade references and banking information is a critical part of the process as doing this will help ensure that you will be paid for services rendered and that your customer is reliable. Verifying the shipping address and making sure your customer understands the time that has been allotted for payment is also important. So you’ll probably need to got on your computer and start googling some stuff!
The signature on the application has to be that of an officer and the terms of conditions outlined have to be agreed to by the customer and yourself. In some cases, depending on your business, you may need to ask for more information like Tax ID or SIC Code, but the most important reason for you to have the business credit application is so you can check the customer’s references. If you just have a customer fill out the application, but do not thoroughly investigate the info on the credit app, you may find yourself using a collection agency more often. Or worse…you may find yourself camping out on the steps to the courthouse
There is no reason why your business cannot extend credit to your customers. Just make sure you do your due diligence and always require a signed credit application…your customer’s will respect you for it and take you more seriously.
What’s better than a little bit of customer loyalty (and respect) to help your business along?