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| Image source: nerdwallet.com |
Credit has been one of the most effective ways to attract more customers to a retail business. The appeal of buy now, pay later enables customers motivates them to purchase while increasing their buying power significantly. Merchants also benefit from ensuring a captive audience; customers can make big purchases immediately rather than waiting, which could increase the likelihood of them taking their business elsewhere.
However, credit comes with risks. Because no cash is received, businesses take in a temporary loss every time they sell with credit. This can become really problematic when customers fail to pay on time. The tempting allure of credit sometimes often snags truly irresponsible buyers who end up purchasing beyond their means.
Because late-paying or nonpaying customers can interfere with cash flow, it is important that businesses work toward a credit policy that opens up the customer's buying power without extending credit to every customer that asks.
Here are a few ways to make credit policies work for a business, maximizing its benefits while reducing its risks.
1.Offer cash discounts. Cash flow is one of the most significant ways of supporting a credit policy. Simply offering lower prices for cash payments can inspire more customers to pay with cash.
2.Keep ample documentation of billing. Sufficient records can make each of the credit lines extended to customers easily tracked, ensuring that late payers can be properly identified, and payment disputes immediately resolved.
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| Image source: expertbusinessadvice.com |
3.Have strict requirements and terms for extending credit. Properly set requirements and clearly laid out terms can ensure that credit lines are extended to customers deemed eligible. The additional requirements involved can even discourage more impulsive buyers from buying on credit willy-nilly.
Businesses can also set up a collections policy to deal with late-paying and nonpaying clients.
Brennan & Clark provides businesses with an array of customized solutions for receivables to make quick work of payment collections. Visit this blog for more updates on collecting from customers.
