Every business would prefer to receive immediate compensation for services rendered, but that just isn’t always possible in today’s economy. In many instances, particularly with big ticket items, your customers just don’t have the money up front to afford the product or service you might want to sell them. This is the driving force behind the ever-increasing about of outstanding credit on the books of companies across the country.
If your company is in a place where you have to extend credit to customers, you want to make sure that you are doing everything in your power to guarantee that you are going to receive those future payments your customers are signing up for. In order to do just that, we have put together six best practices that every company should have in place before extending credit terms to anyone.
Carefully Screen Your Customers
The first thing that every company needs to do before offering credit terms to any customer is to screen that customer as thoroughly as possible. This means running background checks on both their credit and criminal histories. If there are any negatives that show up on either of these reports, they should be considered massive red flags.
Spell Out the Terms Clearly
The next way to make sure that you are doing everything in your power to guarantee a smooth lending process is to state the exact parameters of your agreement in writing and have the borrower sign an agreement to those terms. Many small businesses make the mistake of assuming that a simple handshake is enough to seal the deal, but if things happen to go south, you are going to want more than that handshake to fall back on.
Send Invoices Consistently
Another thing that all of the best lending companies do is send their borrowers invoices on a consistent schedule. This helps those borrowers get into a regular habit of making their payments at the same time each month. And anything we can do to encourage those customers to pay you consistently is going to be a huge benefit.
Keep a Detailed Database
Whether a customer never misses a payment or is constantly struggling to catch up, you are going to want to have detailed documentation of just about every aspect of your history with them. Having some type of database to record and store all of these details related to each customer you extend credit to is absolutely essential.
Send Late Notices Immediately
Any business that regularly extends credit to customers is eventually going to encounter a situation where one of those customers is late in making their payment. In these situations, getting a late notice out to those debtors as quickly as possible is one of the most critical factors contributing to whether you will be able to salvage the relationship or watch it devolve into another delinquent account.
Have a Plan to Handle Delinquent Account
When one of your accounts does slide into delinquent status, the best credit offering companies will have a plan in place for exactly how they want to proceed. In many cases, this might mean sending out the information about the delinquent account to a commercial debt collection agency that the company has already established a relationship with.
Extending credit to customers is always a difficult endeavor, but it is a necessary one in today’s business environment. If you are in a business where you feel forced to work with customers on a buy now, pay later basis, making sure that you have these best practices in place can go a long way towards making sure that you don’t regret offering credit to customers down the road.