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Reviewing Your Credit Policy

Published by Jake Grimm on 06 Mar 2020

Businesses are always looking for ways to improve and be more profitable. Although there are many ways to make your business more profitable, having sound credit policies should be high on your list. Even in a good economy, you should never let your guard down. You should take the time every so often to review your business credit policies. Check out the list below for review tips.

  1. What does 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 carrying costs by half.pen_display_accomplished_7579 - Copy

  2. Don't be so eager to sign up 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.

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

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

  5. Be aware of the payment cycles for your industry. For instance, if a customer typically pays 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.



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