If you currently sell credit items to your customers, chances are you should take a second look at your credit criteria. Over time, you may find you’re overextending yourself or reducing your cash flow by offering too much credit. Or, you could be losing business because you’re not lending enough.
Why Offer Credit in the First Place?
People may be thrilled to find a business in your industry which offers credit. Not only can you attract new customers when you offer them credit, you encourage your existing customers to make larger purchases. They can afford the purchases with less struggle through payment plans and ultimately, you’ll make more money.
When you offer credit you also make it clear to your clients that your business is financially stable and a worthy long-term partner.
If you’re considering offering credit for the first time, then it’s a good idea to test this new service out on a selection of new and existing customers first. This test can help you gauge if the risk of offering credit is worth the increased sales you’ll see. Or, you may find that offering credit to only your top customers is the best way to minimize your risk.
We Recommend Being Strict About Your Credit Criteria
Occasionally, you may also find that customers using your credit services or products may begin to miss payments for the first time. Perhaps they have over extended themselves. If these missed payments are significant to you, it’s a good idea to tighten up your credit policy so that your other clients won’t start missing payments and add even more stress to your business.
If you’re having cash flow problems, consider changing your credit policies. You need to generate enough cash flow to keep your business operating even when you’re lending out maximum credit to your clients. It’s also wise to account for a certain percentage of missed or late payments. That percentage depends on your business and your current clientele.
Be Selective About Your Credit Policies
Remember that you can offer different clients different credit terms. Their history with you is one of the best indicators of their credit worthiness.
If one customer has an excellent payment history with you, extend them a bit more credit. Offer less credit to new customers and those with poor histories. This can help you make up for the risk of their credit, so you don’t have to restrict your credit criteria across the board.
Want to Limit Your Credit Risk?
There are more ways to limit your credit risk than just changing your lending policies. J D Factors can take on the risk for you. We pay your invoices as soon as you submit them and get payments from your customer. We also offer non-recourse factoring, which means that if your customer never pays because of a credit issue such as bankruptcy, we don’t ask you for the money back. We offer protection from bad debt and much more.
Factoring gives you a healthier cash flow, so you have the cash on hand to take advantage of supplier quick pay discounts, can pay down your debt, purchase new equipment, and invest where your business needs it.
Still not sure? Contact J D Factors today for free credit checks on new or potential customers, free of charge with no strings attached.
No comments:
Post a Comment