If your profits are dwindling, it may be time to review your credit policies. Having an established credit policy in place should be at the top of your list. Below are 4 things you should consider as you review your credit policies.
- What does it cost to extend credit to your clients? For example, a business that has $1,000 in credit sales per day, and it takes you 60 days to collect, at 10% interest, the cost of providing credit to that client is $6,000 per year. However, by changing the collection time to 30 days, your cost would be cut in half.
- Don't wait until the end of the month to bill your clients, invoice your clients when you ship and deliver the goods or services to speed up your collections. Be sure the invoice clearly states payment terms. Include any discounts for prompt payments as well as any late payment fees.
- It’s essential that you establish a collection policy and always promptly follow-up on delinquent accounts. The longer an account is overdue, the more likely it is to be un-collectible. This will certainly cut into company profits.
- When signing up new customers, take the time to check references, and obtain a credit report to see how they’ve handled other financial transactions.
There are several different ways to make your business more profitable. Having sound credit policies and adhering to those policies enhance your chances for the survival of your business, especially when the economy slows down.
Do you need to review your credit policies? Perhaps you need to set policies in place to help make your business more profitable. At Summit CPA we offer multiple resources to assist small businesses. Contact our office at (866) 497-9761 to schedule an appointment with our advisors to see how we can help.