Extending Credit - Ten Things to Think About
1. Do you actually need to extend credit to your customers? Is it necessary to offer credit in your business, or are you able to operate profitably by expecting to be paid in cash?
2. Will you accept checks? Most people don’t think of accepting checks as extending credit, but you do take a credit risk when you accept a check for payment. If your customer doesn’t have money in his or her checking account to cover the amount of the check, your customer’s bank will “bounce” the check (return it to you unpaid).
3. Will you accept credit cards? You don’t take a very big risk by accepting credit cards, particularly if you are careful about following the credit card company’s policies and procedures. When you accept a credit card as payment, your bank (as a “merchant” bank) collects the money from your customer for you. In return, you pay the “merchant” bank a fee for doing so, usually from 2 to 6 percent of the bill for most small businesses.
4. Will you offer credit terms? “Credit terms” means the amount of time you give your customer to pay your bill. The type of business that you operate will help determine the type of credit terms that you offer.
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