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Are your customers creditworthy?

January 23, 2012 - Tags: Customers, Sales

Istock 000006001673xsmallAs a small business owner, you have employees to pay, inventory to buy, rent to pay, and taxes to remit. Managing your cash flow is critical to ensuring that you can meet those financial obligations. When customers don't pay on time, or never pay at all, it can put your small business in a difficult position.

You can decrease the chances of your customers not paying by checking their credit and working out clear payment terms. Develop a credit policy for your business that outlines:

  • The criteria for being granted credit
  • The approach you use for evaluating creditworthiness
  • How much credit you give
  • What your payment terms are (deposit/retainer requirements, billing cycle, payment due date, interest charges, etc.)

Next, you will need to create a credit application form. You can use the form for your own internal purposes, such as mailing invoices and following up regarding payment issues, as well as to help you order a credit report from a credit bureau. Most credit bureaus offer subscription services if you expect to be ordering a lot of credit reports. Look closely at the forms required by the credit bureau that you plan to work with before finalizing your credit application form to ensure you are collecting all of the required information.

Credit bureau reports and a clear credit policy can help you manage the credit-giving process. However, only you can decide how much risk you are willing to take to make a sale.

Check out our section on Managing your finances for more ideas on how to manage your cash.

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