Want to Extend Credit to Your Customers? 3 Things You Need to Know
One of the ways you can make more money as a small business owner is by extending credit to your customers. Extending credit to your customers is one way to allow your customers to purchase goods and services and pay you off over time. This can be a great service to offer your customers, and it can really help you expand your business. However, offering credit can be a complicated process that requires a little more business accounting knowledge than just sending out regular invoices.
Establish a Credit Policy for Your Customers
First, you need to establish a credit policy for your customers. You can't just extend credit to anyone your business works with. You need to have a policy for extending credit. You don't have to run a credit score for each business or customer you work with. You can start by basing your credit score policy on customer's past behavior with your business. Customers who have a history of paying their bills on time or in advance would be offered better credit terms, such as 90-day credit terms, whereas customers with a history of late payments would be offered a lower credit limit and shorter credit terms.
You can also pay to run a credit report. However, due to the cost of running a credit report, you may only want to do that when you are extending higher credit limits.
Invest in Invoice Tracking Software
Next, when you offer credit to customers, you need to be able to keep track of your credit offers and you need to have a system for sending out invoices to your customers. An accountant can help you set up an invoice tracking system. With an invoice tracking system, you are going to want to set up automatic electronic reminders to send out to customers. You need something that will allow you to accept online payments and that will connect directly with an accounts receivable agency when customers do not pay their bills.
Formal Credit Policy
Finally, you can't just extend credit on faith. You need to extend credit with a formal policy. Work with an accountant and a business lawyer to create a credit agreement. This credit agreement should include information such as contact information, payment terms, interest and penalties for late payments, what type of payments are accepted, and what will happen when payment is delinquent.
Open up your business by offering credit to your current customers. Work with an attorney and an accountant to come up with a system for offering credit to customers.