Instant Business Credit
As business owners we always strive to make it as easy as possible for our customers to purchase our products or services. Other than accepting credit cards we find our businesses extending instant business credit to customers as a way to increase sales and build customer loyalty.
It’s the largest use of capital from business to business and remains the #1 alternative to personal and small business loans. The SBA even reports that businesses extending credit is the single largest source of small business lending in America today.
While extending credit by as little as 30 or 60 day is just like offering instant business loans it’s a credit risk most of us are willing to take. We’re simply providing goods or services in return for a promise to pay.
But as many business owners have learned during these tough economic times, promises are easily broken.
Before you decide to extend instant business credit to your customer here is a checklist that you may find helpful:
Extending Credit Do’s
- Do establish a credit policy that will determine who you will extend credit to, how much credit you will extend and how you will monitor that credit once it has been extended.
- Do establish a thorough credit application including trade references, banking information, credit check authorization, terms and conditions, and disclaimers.
- Do have the ability to pull a consumer credit report from one of the major credit reporting agencies in order to determine the creditworthiness of your customer.
- Do have the ability to pull a business credit report from one of the major business credit bureaus in order to determine the creditworthiness of your business customer.
- Do exchange payment data with consumer and business credit bureaus so you can reduce customer late payments, defaults, and improve collections.
- Do offer several options for your customers to pay such as online bill pay, mail-in-payments, and pay by phone.
In addition be sure to look at the amount of business a particular customer gives you. Giving a customer a credit limit because they bring in large volumes of revenue for your business is a smart move. If they also have a long history of supporting your business, then they will be more likely to pay their invoices.
Extending Credit Do Not’s
- Do not extend instant business credit without having your credit terms in writing.
- Do not extend credit if your business does not have a significant amount of cash flow.
- Do not extend credit until you become fully aware with the laws governing consumer credit.
- Do not extend credit limits to customers greater than the risk your business is willing to take.
- Do not extend credit to every customer that your business acquires.
- Do not extend credit unless you have a collection policy in place that can manage and protect your accounts receivable.
The success of any business largely depends on the acquisition of customers. Once you have become established enough to generate solid cash flow you can begin to extend credit to some customers.
While cash is king providing credit like a commercial credit company can benefit your business in several ways including greater customer loyalty and increased sales by as much as fifty percent. Before you make a decision you may also want to consider asking customers for additional requirements like down payments and personal guarantees. Despite the risks involved the benefits far outweigh the disadvantages.
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About the Author
Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in The Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.
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