One=
of the
most important yet controversial relationships between businesses and custo=
mers
involves credit. Though a necessity for many types of business, credit puts=
the
entrepreneur at risk by limiting the amount of ready cash the business has =
at
its disposal.
Eve=
n if
only a small number of customers take advantage of credit, you should manag=
e a
credit program carefully, beginning with a written policy understood by
employees. The policy should state specific terms under which credit will be
extended, such as a good credit history from a credit bureau or favorable b=
ank
references.
Unf=
ortunately,
many small businesses are lax in their investigation of credit histories. S=
ome
may accept evidence of a single credit card as evidence of low risk, when in
fact the customer is mired in debt. Other businesses are not immune to cred=
it
problems either. If your firm sells to other businesses, make sure you obta=
in
good credit references from their suppliers.
Mak=
e credit
checks a routine process and routinely track the age of receivables by acco=
unt.
The longer money has been outstanding, the more difficult it becomes to
collect. If an account is consistently overdue, reduce the credit limit or =
cut
off credit entirely. Credit means someone is using your product or service =
as
well as your money to do their business.
A s=
ystem
for following up on overdue accounts is also a must. Most businesses begin =
with
a notice on the next bill. The second notice may be a letter followed by a
personal phone call. The final step, if required, may be to turn the account
over to a collection agency or attorney for action. The key is to manage the
process before you ever reach the point where the debt is either so old or =
so
large that you have to take extreme measures to collect the money due your
business.
If =
you
would like to discuss credit policies, accounts receivables or managing
in-house collections, contact SCORE “Counselors to