Know ALL your Customers
And Reap the Benefits of Extending Credit
If you're one of the few lucky businesses with cash-rich customers who always pay on time, you may not think you need to know much about these gold-star payers. But think again. And surely, if you're in this camp, you might ask yourself "Why should I consider extending credit to customers and go to the trouble of implementing a credit policy?" Here's why:
Things Change
Today's cash-rich customer could be tomorrow's business casualty. Everything may look rosy from your narrow perspective: they pay their bills. But without developing a customer profile - and updating it regularly - you really can't be sure your best-paying customers will remain that way.
Customer Problems Become Your Problems
Successful cash flow management is the lifeblood of your business. Not receiving payment on your invoices when due (i.e., expected) could have negative ramifications throughout your company. After all, you too have invoices to pay and inventory and raw materials to buy. If they turn off the lights and stop your deliveries, your company won't be long for this business world.
There's Something In It For You
Having sound credit policies and procedures could have a substantial positive impact on your bottom line. It could turn prospects who prefer a credit arrangement into paying customers. And, depending on what terms you offer, you might be able to use your credit policy as a competitive advantage. In the race to win new customers, offering slightly better terms could work in your favor. If you decide to implement a credit policy or revise your existing one, be sure to get the word out.
A Few Uncollectibles Are Not a Bad Thing
The fact is, a small number of uncollectible accounts is evidence of a sound credit policy and good business management. If you are too cautious in rating customers because your goal is to avoid all credit losses, you could miss out on some attractive big profits. The idea is to strike a balance.
Keeping an eye even on customers who pay upon receipt of goods and services can help you avoid being blind-sided if a customer runs into a rough patch. If you do extend credit, a credit policy that includes procedures for monitoring changes in customer profiles can reduce your risk of late payment or default and minimize the costs of collection. And remember that extending credit is also a sales tool - it could entice qualified customers to start doing business with you.
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