How to Extend Credit – and Not Get Burned
The decision to extend credit to your customers is not easy for small business owners who need to watch every penny. But you may find that there will come a time that refusing to extend credit could hurt your business.
If you secured funding through a bank to start your business then you know that credit is not – and should not – be extended to everyone who asks for it.
Your bank did a thorough credit check on you and/or your business and likely also studied your business model and other information about the business.
In the same way, you need to set up guidelines about deciding to whom you should extend credit. Some companies invoice all of their clients after the fact.
Depending on the type of business that you have, this may work for you.
Have a Reliable System In Place
Most small business owners, however, cannot afford to have a lot of delinquent accounts, so some type of approval system must be in place.
Perhaps you will choose to run a credit report on the person or individual seeking credit. If dealing with a business, perhaps just checking references will do.
Whatever your approval process, have some guidelines in place that will help to weed out the biggest risks.
Follow the Law
You will also need to have procedures in place to be followed when a customer does not pay. There are laws that regulate debt collection, so be sure that your policies are fair to all involved and that they follow all state and federal laws.
The decision to extend credit can result in higher revenue for your business. Just be sure that the people you are trusting are a good risk.
