In today’s economy, accepting credit cards is a sure way to boost business. Most consumers carry less than $ 50 in cash in their wallets at any one time, according to Bankrate.com. So while you may be hesitant to take anything other than paper bills and coins, your business could be losing customers and valuable profits as a result. In this section we have compiled a list of factors to consider when you are deciding whether your business should extend credit.
See: Consumer Credit Extension in a Small Business
10 Factors to Consider When Extending Customer Credit
1. Do you really need to extend credit to your customers? Is it necessary to offer credit in your business, or can you operate profitably expecting to be paid in cash?
2. Will you accept checks? Most people don’t think of accepting checks as an extension of credit, but you take a credit risk when you accept a check for payment. If your customer does not have money in their 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 do not take a great risk when accepting credit cards, particularly if you are careful to follow the policies and procedures of the credit card company. When you accept a credit card as payment, your bank (such as a “merchant” bank) collects your customer’s money for you. In return, you pay the “merchant” bank a commission for doing so, usually 2 to 6 percent of the account for most small businesses.
4. Will you offer credit terms? “Credit terms” means the amount of time you give your customer to pay their bill. The type of business you operate will help you determine the type of credit terms you offer.
5. How will you decide who gets the credit? You may decide that you will offer credit terms only to business customers and require consumers to pay with cash or credit card. Set guidelines to follow, but remember to use common sense. Usually your instincts about a particular situation are helpful. If you decide to offer credit to consumers, special laws apply, so consult your attorney first!
6. How will you obtain credit information from your customers? You may decide to request a written request and financial statements to help make your credit decision. You can also decide to obtain credit references and / or a credit report.
7. How much credit will you offer? The best approach is to offer a relatively low amount of credit up front. If your customer pays you as agreed over a period of time, you can increase that customer’s credit limit.
8. How will you “bill” or bill the customer? Will your company send the invoices or hire an outside company to do it for you?
9. How will you collect past due accounts? It is best to establish collection procedures to follow before any account becomes delinquent.
10. If you extend credit to “consumers” for personal, family or household purposes, how will you comply with the state laws and federal consumer protection applicable?