Extending credit to clients can help small businesses increase sales volume, enhance customer loyalty, and gain a competitive advantage over businesses that do not offer deferred payment plans. But, if clients fail to pay according to terms, offering credit can also be a source of cash flow problems.
Fortunately, there are actions that small-business owners can take to make sure their clients pay on time. What are they?
Arm Yourself With Information
Unfortunately, it is very difficult to predict how a client will manage a credit account without any data on their past payment history. That is why small-business owners should always run business credit checks before extending credit to any of their customers.
Past behavior is an extremely reliable indicator of future behavior, so if a client has a history of paying their credit accounts ahead of schedule, it can be fairly safely assumed that they will continue to do so in the future, barring any unforeseen circumstances.
Of course, any business owner knows that the business world can be very unpredictable, and such circumstances can and do occur. So, in addition to running a credit check, conducting continuous credit monitoring on key credit clients is a smart policy. Business credit monitoring services are a very useful tool for building and maintaining credit, but they are also instrumental in keeping tabs on the financial health of credit clients.
Create a Credit Policy and Make It Clear
Having a no-nonsense credit policy and making sure all clients are fully aware of the rules is essential. The credit policy should detail the terms of the agreement in such a way that there can be no questions about what they mean. Before granting credit, the business owner or a member of the staff should go over the credit policy with the client present, making sure they do not have any questions. The client should sign the original and be given a copy for their records.
Reward Good Behavior
When clients pay early, it becomes easier to manage cash flow, and cuts down on administrative expenses. So, many small-business owners have found that offering an early payment discount is a sound investment. Clients enjoy saving money, and business owners appreciate being paid ahead of schedule. It’s a win-win.
Punish Bad Behavior
The credit policy should also contain specific penalties for late payments, and those penalties should be strictly enforced. Business owners who let procrastinating clients slide on their late fees are virtually guaranteeing that they will be paid late in the future as well.