Providing Customer Credit to help your bottom line.
While there are undoubtedly risks associated with extending credit to your business customers, it can also make a very significant impact on your bottom line, and in some cases, can even mean the difference between surviving as a business entity, and having to fold up the tent. Most small business owners are at some point faced with the decision of whether or not to extend some form of credit to customers, especially since cash transactions represent only a small portion of the total volume of business conducted.
The considerations below may help you decide whether your business should extend some kind of credit to customers, and just what form that credit extension should take, e.g. credit cards, invoices, personal checks, or others.
Pros and cons of customer credit
If extending customer credit is what keeps your business in operation, this is a no-brainer, other than the necessity of deciding on whether you will accept checks, credit cards, or other payments besides cash. Keep in mind that with credit cards, it’s the card company which takes on the risk of non-payment and not your own company. With checks and invoices, the risk remains with you and your company, and you can probably count on at least a percentage of those payments winding up uncollectible.
When you do sell on credit, you won’t receive an actual payment for the goods or services until some time in the future, which means you may need to generate cash flow for your business in some other way. If customers ultimately do not pay you, that’s a business loss which can end up being fairly significant if it happens frequently enough.
On the plus side of things, when you extend credit to customers, they are far less concerned about the price of goods or services they buy from you, because no actual cash comes out of their pocket. This often results in them being willing to pay more for the items they want, and just as often, it encourages more purchases, and a higher total purchase amount.