Running a business in today’s world means having to offer credit. It is that simple. Where most businesses make their mistake is in thinking that the process of offering credit is also simple. Just the opposite. The entire process has to be thought through from beginning to end, and properly planned for. Failure to develop a plan for how to offer credit can bring a small business down.
The good news is that managing credit risk is possible. Despite recent privacy legislation making it almost impossible to collect any information on new creditors, offering credit does not have to be like playing Russian roulette. There are very clear steps and outlines the small business person can follow to manage their risk.
First of all, never forget that an account properly opened is 90% collected. The most important part of offering credit is in spending time writing a proper and detailed credit policy that clearly explains your terms, and your stipulations. This also means having every new client review the credit policy, agree to it, and sign it. Taking the time to have a well written credit policy, and take the client through it, generally takes care of 90% of a business person’s problems.
That may seem common sense, but it is still startling how many businesses still do business on the basis of a handshake, and then are surprised when their staggering receivables swallow up their remaining cash flow and they must close their doors.
Secondly it is important that business people budget for offering credit. Your long term financial plans, budgeting, and pricing need to take into account your receivables to ensure your cash flow is secure. It is also important to have plans in place to be ready to absorb possible bad debt in the long term. Manufacturing and service providers can also look closely at their inventory and project management to ensure that they are not incurring more debt than has already been paid for.
Thirdly, it is still important to gauge your client. As a business owner, the market may determine that it is important for you to offer credit, but you are under no obligation to offer credit to any given individual client or business without due process. Ask for permission to perform a proper credit check, have the client fill out a credit application, check their references, and most importantly listen to your instincts. Sometimes one lost sale may be a long term blessing compared to carrying a customer's unpaid debt.
A business owner may be skilled in the requirements of their chosen industry, but not about how to properly prepare for offering credit and collecting receivables, nor do they have the time and experience necessary to properly manage their ongoing credit process. This is where DMG Commercial Credit Consulting comes in. For small to medium sized businesses that don’t have the time to manage their credit, DMG uses their 30 years in the industry to serve as your businesses credit manager. From writing credit policies and credit approval forms, to running credit history checks, to receivable management and collection, DMG Commercial Credit Consulting will manage your credit, so you can run your business.