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Cash flow: Offer customers credit, but be careful
 You
may find yourself in a situation where offering credit is necessary
for doing business, or you may decide to accept credit as a way
to generate more business. Of the two types of credit, trade and
consumer, consumer is the easiest to offer and maintain.
- Consumer credit involves
the acceptance of major credit and debit cards. To offer this
service, you simply approach your bank and set up a program. The
bank takes a small fee or percentage on each charge and in exchange,
it accepts the credit risk.
- Trade credit is offered
by the business itself. In some industries, such as manufacturing
and wholesaling, customers expect trade credit. For example, when
a wholesaler ships supplies to a retail company, the accompanying
invoice indicates terms of payment. Most wholesalers give the
retailer 30 days to pay the bill, which amounts to 30 days of
credit.
Before you make trade credit a policy, make sure you
understand the risk and take steps to reduce it. The best way to
do this is to get training in credit procedures. This is offered
by many credit bureaus. Also, become familiar with the Fair
Credit Reporting Act, Equal Credit Opportunity Act, Fair Credit
and Charge Card Disclosure Act and Fair Debt Collections Practices
Act.
Good credit policies are essential to business survival,
and will help you manage your cash flow. Remember that the same
qualities a lender looks for in you are the ones you want in a borrower.
Carefully set up an overall company credit plan which will:
- Establish credit policies
- Create a credit application
- Set credit limits
- Oversee credit usage
- Formulate a collection policy
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