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What you should know about extending credit, and how it can benefit and hurt your business
First of all, it may not even be possible for you to obtain the information that you will need to issue credit depending on the state regulations pertaining to the kind of information that customers can be asked for when purchasing items with credit cards.Often, businesses cannot require customers to give personal information.Exceptions may apply if the needed information must be surrendered for other reasons such as the home delivery of a product.For information regarding the regulations in the state of your business contact your state Attorney General website.
Extending credit can be a tricky business.You want to establish credit practices that are fair but you also want to make sure that there are safety nets in place so that you get paid for the products or services that you have rendered.You need to have set procedures in place to protect both your customer and your payment.And even when you do have procedures set in place and event such as customer bankruptcy may make collecting a debt impossible and you will have to absorb the lost costs. Obviously there are advantages and disadvantages to extending credit.Many successful businesses who extend credit will tell you that even with the risks and loses involved, the use of credit has given their business welcomed gains on interest payments while at the same time satisfying their customer's needs to buy over a period of time.Yet starting a customer credit program is always the most difficult part of the process and there are important questions to ask yourself when contemplating extending credit to your customers and how it can benefit and hurt your business. The first and most important question that you need to ask yourself is: "Do I actually need to extend credit to my customers?"If you are operating profitably on cash payments, there may not be a need to involve more risk in your operation by offering credit options.If you accept checks from your customers and have had problems with bounced checks, you may want to take that as an indication that your customers may not be the type that you would trust to be credit worthy.Technically accepting checks is more closely related to issuing credit than even the use of credit cards because the credit card company's policies and procedures will ensure that even the use of a customer credit card at your facility will be guaranteed payment. You should also ask yourself what kinds of terms you might have on the credit you extend to your customers and how you will decide who is allowed to participate in the credit program.You will also need to know how you will go about getting the personal application information that you need and how you will proceed in checking individual credit worthiness.You will need to decide how much credit to offer different individuals and how you will send statements to those individuals with opened accounts.You will also need to set up procedure to ensure that as few accounts become delinquent as possible. |
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