The do's and don'ts of extending credit

Deciding whether to extend credit to a customer can be a big decision.You never know whether or not you're actually going to receive payment for the person who has been credited.On the other hand, credit can be a great way to encourage people to buy more than they usually would.If people realize they can get something now and pay for it later, they're much m ore likely to splurge and buy.Nevertheless, there are still a few things that you should be aware of before extending credit.Here are a few do's and don'ts of extending credit.

The "Do's" of extending credit
- Do develop a credit and collection policy if you're going to offer credit to your customers.You must plan ahead and realize that some people just won't pay, no matter what.This will help you save a lot of time, money and energy later on.
- Do get in contact with your attorney concerning your credit and collection policy.Your attorney will be able to give you solid advice concerning state and federal laws and collection matters.
- Do be sure that your credit policy is in agreement with your cash flow needs.Ask yourself if you will have enough money coming in from your invoices to pay your company's bills to its vendors.You don't want all of your customers to be paying on credit or you'll find that you won't have any income at all.

- Do have a specific date for payments for your customers.You should also have a plan for when you talk to your customers about bills that are past due.
- Do be sure to talk to your customer in person or on the phone about any of their bills that are past due.It's always easier for a customer to ignore a bill when they simply receive a letter reminder.But it's much more difficult to ignore a person who actually calls to remind them about a bill.
- Do try to be understanding and listen to a customer's reasons for not paying a bill.You may find that there is a problem that your company could fix in its credit program.Or perhaps your customer has an extenuating circumstance.You should listen to such problems and adjust your policies accordingly.

The "Don'ts" of extending credit
- Don't threaten to turn a customer's account over to collections unless that is actually what your company is going to do.Idle threats only encourage customers not to take your company seriously.
- Don't let customer bills and obligations go past due without taking any collection action.The longer you wait to collect on an account, the harder it will be for your company to collect.Plus, the customer may start to think they can get away without paying their bills.
- Don't have one of your own employees who are tied to your products be the one to collect the debt.Your sales person will not have the ability to be impartial.An outside collection agency or individual collector will be able to detachedly collect the bill.
- Don't loose your temper or get angry if your customer makes excuses for not paying.Instead, be sure to ask the customer for a promise when the bill will be paid and the exact amount that will be paid.

If you're able to incorporate these few tips, you'll find that extending credit will be a much smoother process.You won't encounter as many loop holes.Your customers will be happy because they get to use credit and you'll be happy because your customers will (hopefully) buy more than they usually would because they have credit.