Credit Policy Review

As a business owner, you are always looking for a ways to be more profitable. Maybe you’re starting a new business and you want to make sure things run smoothly. There are many ways to make your business more profitable and having a sound credit policies should be high on your list.

The economy is still rebounding so don’t let your guard down. This is a good time to review your business’ credit policies. Here are a few things to keep in mind, as you review your credit policies.

* What will I it cost to offer credit to your customers. Example: if your business generates $1,000 per day in credit sales, and it takes you an average of 60 days to collect, your cost of providing credit to your customers is $3,000 per year. This assumes you can borrow money at 5% interest. *By changing the average collection to 30 days, you cut your carrying costs by half.

* Don't be so eager to sign on new customers that you neglect to check out their credit history. Take the time to check references, and obtain a credit report to see how they've handled other financial transactions.

* Establish collection policies and follow up promptly on delinquent accounts. The more overdue accounts become, the more likely they are to become noncollectable and cut into your profits.

* To speed collections, invoice customers when you ship the goods; don't wait until the end of the month. Make sure your invoice clearly shows your payment terms, including penalties for late payment and the discount, if any, for prompt payment.

* Be aware of the payment cycles for your industry. For instance, if a customer typically pay their bills by the 10th of the month, make sure your invoices arrive in plenty of time for them to process your payment.

It doesn’t matter if you have an old business or if you’re starting a new business, good credit policies for your business may just make a huge difference in your profitability. If you would like more tips or assistance with a strategy for your business, contact our office at (260) 497-9761 to schedule an appointment with our advisors.