You need a clearly defined credit policy to keeping your business running
With the current state of the economy, adopting a smart credit policy can be considered as one of the wisest decisions any small business owner can make. Without it, you may risk losing your existing customers and your entire business as well.
Taking the time and effort to help your customers pay what they owe you can spell the difference between keeping your business afloat and going bust. It can help you collect what your customers owe you and keep your cash flow on an even keel. So, how do you do it? Here are the steps you need to take to have a smart credit policy in place.
Check your records. Take your accounts receivables report and make a list of all the people with late or unpaid invoices. Take note of how much they owe you and how long the account has been past due.
Work on your delinquent accounts. Put a serious effort into collecting payments from customers with delinquent and slow-paying accounts. This will help you generate more cash flow to keep your business running.
Have a credit policy manual in place. Now that you have checked your records and hopefully collected most of your unpaid invoices, you need to get more serious and more business-like in extending credit to your customers. You need to have an official credit policy manual in place. To do this, you need to:
- Disclose your credit policy to your customers. Let them know the net terms, when their full payment is due, and the interest rate for delinquent accounts. You should also indicate how interest is calculated and the steps that will be taken against delinquent accounts.
- Assess credit-worthiness. Protect your business by requiring customers to accomplish a credit application that will give you the right to pull their credit score. You may likewise consider asking for credit references so you can check if they have the ability to pay you on time.
- Request a deposit. This can help minimize your risks.
- Provide several options for making payments. Offer check, credit card, money order and online payments to make it easy for your customers and clients to pay their invoices on time.
- Provide an incentive. Providing an incentive for payments made before the due date can go a long, long way in improving your cash flow.