Accepting the request of the customer and give credit, may be a way to increase our sales and create or maintain a business relationship with that customer. However, accepting the credit can be significant problems of liquidity, or the risk that the client does not pay on the agreed date or even not get us to pay.
In the case of large companies, they have a credit and collections department that allows them to efficiently manage credit and collections thereof. But in the case of small companies or businesses, the decision to give credit to a customer is not something we can leave it to intuition, but is a decision that we should assess it.
Let’s look at some tips you should take before deciding to give credit to a customer:
- First must assess whether we are able to extend credit. If, for example, recently we have started our company and we are short of cash, may not be very convenient to sell even to credit.
- The second is to assess the customer who requests a loan, which includes evaluating your time to market, his business experience, credit history, your ability to pay, etc. Information can be accessed through government agencies, credit bureaus, suppliers of the customer, and the same customer.
- Is necessary to assess either the client, however, the depth of the assessment will depend on the confidence we have in the client and the amount of credit. For example, for a single sale of a few bucks, not worth spending so much time and money investigating the customer.
- If after making our assessment we are still not very convinced of the client’s ability to pay, we must bear in mind that there is always the possibility of requesting some kind of warranty.
- Once we agree to give credit to a customer, you must specify clearly the conditions of the loan and, if possible, you should sign a contract that also includes debt and deadlines, including penalties for late payments.
- We avoid possible credit sales, and if at some point we do not have enough liquidity to extend credit to accept, we must be frank and kindly notify the customer that the problem you ask us.
Finally, a council relates to the granting of credit is to have a program or software that allows us to store information and customer history, and includes detailed records of customer behavior to credit, for example, how were slow pay, how often fell behind in payments, etc.
So that we can better manage our credit and collections, and, above all, we have information that will help us better assess our clients when we subsequently requested a new loan.