5 Reasons to Extend Credit (and 2 Reasons You Shouldn’t)
When you started your business, you knew you'd eventually get to the point where you would need to decide whether to extend credit to your customers. This decision should not be taken lightly considering it could make or break your business. There are many reasons to extend credit. There are several reasons that you shouldn’t extend credit. With the following tips, you can decide what is the best idea for your business.
Attract New Clients
Offering credit can attract new clients. If you are looking for new clients quickly, offering credit can be the way to go. Potential clients can become clients when they see you offer credit instead of requiring immediate payment. If you invoice your clients and they have until a a certain due date to pay it instead of having to pay it right away, it is very enticing. Some clients need a service or a product but can't pay right away. This is where they will look to you for credit. Some clients like to be in control. Offering credit lets them decide what they need and when they send in their payment, up until the due date. New clients are often attracted by credit programs that include affordable payment plans. However, it is important that you have a sound credit policy in place.
Build Loyalty and Trust
You can earn your client's loyalty and trust by extending credit to them. Offering credit shows your client that you trust them to pay you, and this can incline them to trust you in return. They become loyal to your brand when they use your business multiple times. If they keep an account with you, they are less likely to switch. Once they know your business offers the industry's best service, they won’t want to switch. It is important that you always extend the proper amount of credit. Too little credit can feel like an insult. Too much credit can lead clients into payments that they can’t afford which increases the likelihood that they will default.
Boost Your Business's Competitive Edge
Your client wants an effortless way to get the work he or she needs to be finished done right. The client wants a painless way to pay on their time. This is where your company will have a competitive edge by offering credit. Not all businesses offer credit to their clients.
Sell More Services
A client who can pay at a later date inclines themselves to spend more money. This may be because they want or need many of your services, but could only afford one currently. They may know exactly what they need from you in the future. Offering credit can boost your sales and encourage your clients to come back again and again.
Show Off the Financial Stability of Your Business
You've finally made it to the point where you offer credit. You have the capital to work from. Now you want to show it off. Offering credit to your clients shows them that your business is established. They can trust your business not to go out of business and leave them without your services.
With all the great reasons to offer credit, it's unfortunate there are reasons not to. Keep these two reasons in mind before you make your decision.
It Can Cost You
Extending credit to your clients means they don't pay right away unless you request a down payment or retainer of some kind. This can cost you in several ways. First, your client has until the due date to pay. This means that you won't have the money as soon as you may want or need it. Second, the payment may come later than anticipated. Third, a client might decide not to pay. These reasons can have a negative impact on your business. Your income won't come in on time and you'll be forced to find money for business necessities, staff salaries, and payment for yourself from other means.
Past Due Accounts
When offering credit, past due payments and default accounts will happen. Clients forget due dates, checks get lost in the mail, and some clients straight up refuse to pay for one reason or another. Sometimes these lay payment cases must be dealt with a debt collection agency. In any case, past due payments are a frustrating reality when offering credit to clients.
If you decide to extend credit, you'll need a great accounts receivable department. Why not use Clients ARM? We have over 30 years of experience, and we combine old-fashioned customer service values and innovative technology to bring you peace of mind and service that can wow your clients. The consultation is 100% free and no-obligation. What are you waiting for? Click here to contact Clients ARM today!