Why extend credit

Use the following FAQ to help you make a decision. Setting up credit policies for your company can be tricky. Should your business extend credit to your customers? Here are 10 things you should consider before you make the change. Learn about the law and how to keep your credit contracts legal and fair. Credit is when you allow your customers to obtain merchandise or services before they pay for them. You are essentially trusting that they will pay you for them in the future.

When customers use a credit card to make a payment, only the credit card company is assuming the risk. When you extend credit to your customer directly, you are assuming the risk.

This means that if the customer does not pay, you take the loss. According to the Small Business Administration, the extension of credit by businesses is the single biggest source of small business lending in the country. One major benefit to extending credit is that it enhances customer relations and inspires customer loyalty. When your company offers credit, it shows that your business is stable, profitable and trustworthy.

These are some of the problems that can come up when you extend credit to customers. However, this should not discourage you from initiating the practice. There are pros and cons to every business decision.

If you take the right precautions and establish transparent and responsible measures, you can minimize the problems and enjoy the benefits of extending credit.

Start by pulling credit reports from one of the major credit reporting bureaus. Extending credit to the wrong customers is probably the mistake that will cause you the most problems. Makes sure your customers understand the terms of when they have to make payments, the amount of interest and penalties for late payments.

For example, you might start off customers with day terms while offering long-term customers 60 or day terms. Use invoicing software to track invoices. You can track receivable turnover historically and adjust your lending policy accordingly. Due to the nature of credit, your business may run into a cash crunch when you are short on working capital. That is why it is best to plan cash flows using cash flow forecast.

When you need short term capital, you can sell unpaid invoices on a online invoice discounting platform, like InvoiceInterchange , where you can receive fast invoice finance in less than 24 hours. Top tips on how to collect late payments. What is Accounts Receivable and Debtor Aging? InvoiceInterchange can help turn your outstanding invoices into cash in 24 hours. Determine Your Risk Appetite The next step is determining the amount of risk your business can take through extension of credit.

To extend credit means to make or renew any loan, or to enter into any agreement, tacit or express, whereby the repayment or satisfaction of any debt or claim, whether acknowledged or disputed, valid or invalid, and however arising, may or will be deferred.

To extend credit means to make or renew a loan or to enter into an agreement , tacit or express , whereby the repayment or satisfaction of a debt or claim , whether acknowledged or disputed , valid or invalid , and however arising, may or shall be deferred. Sample 1. Sample 2. Sample 3. To extend credit means to make or renew a loan or to enter.