Entrepreneur Magazinetackles a very important question for small business owners and managers; “Should You Extend Credit to Your Customers?”
With all of the payment options currently out there, SMBs can get caught up with the ease in which it is to bill and receive payments from their customers. A sound credit policy is still a key component to managing your company and your cash flow. If a customer has umpteen avenues to pay you but lacks the cash to do so in a timely manner, the drag on your working capital can cause serious problems and cause you to actually lose business down the road if you suddenly lack the funds to fill a new order.
“Credit can make or break a small business. A too-lenient credit policy can set the stage for collection and cash-flow problems later, while a creatively and carefully designed policy can attract customers and boost your business’s cash flow.” Out of fear of offending and losing customers, many operators and AR Managers are reluctant to establish a sound and clear policy around credit.
Take a look at how your competitors handle their own credit policies, determine if you want a liberal or conservative approach to credit and take stock of who your customers are and what industries they reside in. Once you get a holistic picture and are well informed, your well-rounded credit policy should be detailed and shared with customers so that there are no surprises and no hard feelings.
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