Business credit policies are usually very similar but all tend to include similar elements. Still, use the following six steps to develop an effective credit policy for business. Determine who you are going to give credit to. If you select everyone, you may set up your business for eventual failure.
Choose your business credit policy carefully. Make sure it covers what you need. A general agreement might cover you and your employees for invoice purposes. It might not cover your vehicles or equipment, for example, unless you make sure that the terms of the agreement include those items in the coverage.
Your business credit policy should also cover gifts to customers. Make sure the gift is appropriate. Gifts from your customers can be as important to the goodwill of your company as paying your invoices. Many customers will tell you that they wished they had paid their bills with your help. The best way to make sure that you never offend your customers is to make sure your business credit policies specifically cover gifts.
Make your business credit policy specific to the type of business that you have. Most policies are written for companies that have income over a set amount. Your credit sales might be lower than the company's income. Your credit policy might allow only cash payments, which do not make good business sense. If you want to allow your customers to pay by check, however, make sure that you include checks as part of your inventory tracking system.
Your business credit policy will specify which types of accounts your credit department will consider for credit approval. If you do not have accounts receivable, a trade credit policy might be suitable for you. Sales and services credit policy might be suitable for your company, if your sales are primarily to other businesses and you do not sell products to customers in person. If you are a manufacturer of goods that are used by other companies to sell to customers, a warranty and return policy is the best choice for you. Finally, if you are a seller of merchant accounts, the sale of your wholesale or drop-shipping accounts will usually result in your credit policy specifying an invoice discount for you.
Sound credit policies should contain specific sections that describe how customers are charged for purchases. The different charges may include a service charge for the first 30 days, a service fee for the next 30 days and finally a sales tax. Most business credit policies also require that customers pay for returns. These sections should be specific and explain how customers will be charged for returned goods. This section alone will help you maintain proper collection procedures.
When you have decided on a credit policy for your business, you need to find a good lender who will support you in your business ventures. Lenders make sure that they only lend money to those businesses that are capable . . . . . . of paying the interest. Thus, you should make sure that your chosen lender has reasonable interest rates and lending guidelines. You should also make sure that he has reasonable lending limits. Your chosen lender should be able to answer any questions or concerns you have about business credit sales and the limits as well.
Once you have found a good lender, your business credit policy will help you keep track of all customer transactions. With this knowledge, you will be able to easily determine which debts are due and which debts are still on time for payment. This will help you make sure that your sales are successful and that you are making good on your credit sales. Remember that good management of finances is crucial to running a successful business. It is the best way to avoid failing in business.