What does "Extending Credit" mean?

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Aug18

What does "Extending Credit" mean?

August 18, 2006

Know More: Creating a Credit Policy, FAQs, I have past due customers, what do I do?, What makes a Good Collector?

If you own a business and "extend credit" this means you allow consumers to use your goods or services immediately and pay for them later. While extending credit will increase your gross sales, it also puts you at risk for loss due to non-payment.

Most business owners that write off a percentage of their sales to bad debt have an established rate of procedure. This rate runs from 0.5% to 1% on low profile transactions and up to 5% on high profile sales and services. When your charge off or write off rate exceeds 5%, it is necessary to find ways to improve control over this bad debt.

You don't have to accept excessive losses as a part of doing business or extending credit. The fundamentals of establishing and maintaining effective control over your bad debt can be simple and can reduce those loses.

The best way to handle this is to have a credit policy in effect for your business. A credit policy is customized for your particular businesses' situation and can be as detailed or simple as you desire.

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