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And Reap the Benefits
of Extending Credit
If you’re one of the few lucky businesses with cash-rich
customers who always pay on time, you may not think you need
to know much about these gold-star payers. But think
again. And surely, if you’re in this camp, you
might ask yourself “Why should I consider extending
credit to customers and go to the trouble of implementing
a credit policy?” Here’s why:
Things Change
Today’s cash-rich customer could be tomorrow’s
business casualty. Everything may look rosy from your
narrow perspective: they pay their bills. But without
developing a customer profile – and updating it regularly – you
really can’t be sure your best-paying customers will
remain that way.
Customer Problems Become Your Problems
Successful cash flow management is the lifeblood of your
business. Not receiving payment on your invoices
when due (i.e., expected) could have negative ramifications
throughout your company. After all, you too have
invoices to pay and inventory and raw materials to buy. If
they turn off the lights and stop your deliveries, your
company won’t be long for this business world.
There’s Something In It For You
Having sound credit policies and procedures could have a
substantial positive impact on your bottom line. It
could turn prospects who prefer a credit arrangement into
paying customers. And, depending on what terms you
offer, you might be able to use your credit policy as a
competitive advantage. In the race to win new customers,
offering slightly better terms could work in your favor. If
you decide to implement a credit policy or revise your
existing one, be sure to get the word out.
A Few Uncollectibles Are Not a Bad Thing
The fact is, a small number of uncollectible accounts is
evidence of a sound credit policy and good business management. If
you are too cautious in rating customers because your goal
is to avoid all credit losses, you could miss out on some
attractive big profits. The idea is to strike a
balance.
Keeping an eye even on customers who pay upon receipt of goods
and services can help you avoid being blind-sided if a customer
runs into a rough patch. If you do extend credit, a credit
policy that includes procedures for monitoring changes in customer
profiles can reduce your risk of late payment or default and
minimize the costs of collection. And remember that extending
credit is also a sales tool – it could entice qualified
customers to start doing business with you.
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