Extending Credit

So often I have had clients complain about getting paid (or worse not getting paid at all) by customers to whom they have extended credit. I know how exciting it is to sign up a new customer and, with the intent of doing the right thing for the customer, immediately shipping goods along with a net 30 invoice. Big mistake!

Never, ever, extend credit terms until you can get a solid sense that the customer is credit worthy – especially when the business is a small privately held company.

Your process for extending credit needs to include a credit reference form. After signing on the customer, fax your credit form and ask for it to be filled out and faxed back. (There are a number of web sites and office supply stores that can provide standard forms). The information should include: complete contact information of the company owners as well as the accounts receivable manager; a Dun and Bradstreet DUNS number; banking information including bank address, phone number, manager name, account number; and trade references for at least three suppliers. Call the suppliers and ask how promptly the customer pays, and whether they have ever had problems collecting. If possible run a D&B report and carefully review it.

If the customer appears to be solvent and credit worthy, go ahead and extend credit. Track payment history on the first shipment before deciding to sell additional product on credit.

If the customer does not appear to be credit worthy, or you are otherwise concerned about their ability to meet your terms, suggest either: a) shipping COD, getting advance payment, or getting paid by credit card.

If you lose a customer because you will not offer credit – you have probably won! You most likely would have eventually either received payment very late, received partial payment, or not gotten a red cent!

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com