All small business owners have expenses that are unavoidable. They will ultimately have to pay their employees, buy inventory, pay rent, and pay taxes. With this in mind, it is very important that small business owners manage their cash flow accordingly. This is why it is so very critical that clients keep their word when it comes to paying on time. Small businesses can really find themselves in a bind if they don’t have creditworthy clients.
Here are a few things that small business owners should do in order to avoid situations where clients are late making payments, or worse, never make their payments at all.
First, it is important that credit checks are done ahead of time. Next, make sure that the terms of the credit are clear for both parties.
The credit policy should include the following:
- Guidelines for granting credit to clients
- Approach for evaluating client’s credit
- Amount of credit given
- Terms of payment (including deposits, billing dates, due dates, interest, and more)
When dealing with clients, business owners should ensure that they have a credit application that is comprehensive. Businesses can begin by creating their own forms. These forms can be kept on file to keep up with personal information that can be used for billing and other payment issues down the road. These credit applications can also help you to obtain a credit report from one of the major credit bureaus. If you order a lot of credit reports, you can usually get a discount from the bureau by signing up for a subscription. Ensure that your credit applications include all of the pertinent information that is required to obtain a copy of a credit report.
Requiring credit reports and having a credit policy that is easy to understand is vital when it comes to issuing credit to potential clients. You will then be able to determine the risk involved with making sales to those that request a line of credit.