The practice of offering credit is one of the most arduous aspects of managing a business. To wrap up a sale you need to extend credit. This not only provides convenience to customers but also increases cash flows and reduces bad debt.
However, the downside of extending credit is delayed payment or no payment. Many businesses face costly delays with no way of knowing how to collect overdue receivables.
Credit policies should clearly be established before receiving orders. Most up-start entrepreneurs fail to miss the significance of judiciously offering credit and forcefully settling overdue accounts.
Assessing the customer’s earlier payment trends is the easiest way of knowing his paying ability. Customers should be notified if orders surpass limits and told to settle their overdue accounts before further consignment.
While dealing with big companies, always insist on a purchase order. Maintain that all pending invoices be cleared before new orders are accepted. In addition, mail a monthly accounts statement clearly mentioning invoices due and payments received.
However new companies may not have such records. In that case, you should perform a reference check.
The moment you receive an order, you should check the customer’s credits profile. Check whether the person was declared bankrupt earlier, what is his educational background, the stability of his job and earning potential.
When it comes to extending credits to businesses, run a background check whether it is an up-start company or an established one, the extent of business operations, the type of business, and history of insolvency or labour problems.
Assess the business’s ability to pay. Study whether it is strapped for money or not; has it defaulted on previous loan repayments; and if it has a dubious history of check return.
Scrutinize the company’s financial statements such as Cash Flows, Net Worth and Balance Sheet. See whether the company has the ability to take on more debt.
This indicates the external environment in which the business is operating. Changes in taxation policies, interest rates, currency and spiraling inflation all influence a business’s ability to pay.
Thus, a careful credit analysis of a client should be conducted before credit approval.
Most businesses find running their credit and collection activities frustrating. This is where collection services come in. They help put an end to cash flow problems through successful recovery of debt. They save on time and effort that can be invested more profitably. Each case is handled professionally, backed by years of experience.