Should I Extend Credit?

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Jul11

Should I Extend Credit?

Know More: Creating a Credit Policy, FAQs

Extending credit works in your favor in many ways. it can increase customer loyalty. Taking a financial risk for your customers demonstrates that you trust them and are willing to accommodate them.

A credit policy also indicated that your business is financially stable. A business in danger of going under does not give its customers the option of paying later. A struggling business demands and needs payments immediately.

Credit policies increase sales for another reason, some customers are unable to pay for a product or service in full, especially if it is a large purchase. If your customers have the option of paying in monthly installments rather than all at once, they will be more inclined to make larger purchases from you rather than another company that does not offer that option. Make sure you are not that company.

Extending credit also has its downfalls such as your business could lose interest that you could have earned, even if you put it into a low interest savings account. You can't take advantage of purchase discounts from your vendors if the funds are not immediately available or they are paying on account.

Keep in mind that extending credit will take more time and money than you are already extending. Someone will have to take the time to check references, process credit applications, set up new accounts and maybe collect on accounts that you have extended credit to and they did not pay on time.

You will spend money on credit reports, telephone calls, postage, salaries, training & equipment. Extending credit can be risky, and you must be thorough with researching possible applicants. Research that is less than thorough is useless.

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