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Is Extending Credit to my Customers a Valuable Business Tool?

Posted by Gil Oliva on Fri, Aug 22, 2014 @ 08:00 AM

Does your company struggle to collect on payments from customers? Have you noticed a continuing slow payment trend? This could be because you have extended credit to the wrong customers.

Accounts receivable managementOffering credit, or terms is certainly valuable. It can help your customers manage their cash flow, which could be the incentive they need to choose you for goods or services. Many of your competitors are more than likely extending credit to their customers, and it is important to keep up with your competition. But you do need to understand the limitations for your company before you decide.

  • Do you have a grip on your profit margins?
  • How much credit you can afford to offer to your customers?
  • Do you frequently track all outstanding transactions and their value?
  • Do you effectively project your cash flow?

Managing cash flow can be extremely challenging for a small to medium business, and we have discussed many times in previous blogs some of the best ways to manage cash flow. Collecting on delinquent invoices from customers to whom you have extended credit is not fun, so let’s review a few tips to make it easier.

Are you running your credit department efficiently? Do you have an employee overseeing the accounts receivable process, or is this something you take on, along with many other responsibilities? Regular, consistent interaction with your customers is vital. Every account, even those that pay on time, need to be regularly monitored for any glitches, which can also help strengthen your customer service, rewarding those customers who pay on time. Remember, you can always remove credit terms!

If you are extending credit, make sure you have qualified those customers first. Your customers must be creditworthy or you are asking for trouble when it comes to payment. Check some key questions first:

  • Has the customer consistently paid on time?
  • Are they loyal to your company?
  • For new customers, did you pull their business credit report?

This may seem obvious, but it is worth reiterating. When you pull the business credit report, make sure and check for key indicators, such as:

  • Credit risk rating
  • Payment history
  • Outstanding legal issues
  • Length of time in business
  • Collection proceedings

When a business credit report is not available, individual credit scores from the principals of the company can also give a clear indication of how well they manage money and whether you are taking a risk if you extend terms. We would suggest that you establish a relationship with any customer before you go ahead and extend any form of credit, unless you are absolutely sure they will pay on time.

Back to customer service for a moment, treating your customers with respect, and regularly checking in on them will certainly help when it comes to collection. If a customer is struggling to pay, find out why before being too harsh in judgment.

Do you need more immediate access to your working capital? Accounts receivable management is offered as part of invoice factoring with Bay View Funding. Not only can you quickly access your working capital, you can feel comfortable about collection on your invoices and concentrate on growing your business.

Apply Now

Topics: Cash Flow, About Invoice Factoring, Working Capital, Accounts Receivable Management

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