Why You May Need to Consider Extending Business Credit
We are more than half way through the year. How’s business going for you? Are you hearing more, “Sorry – I can’t afford your services,” than you are hearing yes? Depending on the circumstances of the potential clients who are turning down your services, you may benefit from offering business credit.
What Is Business Credit?
Business credit is a line of credit that you extend to a business that needs your services. When it comes to business credit, you must be careful because not everyone (or every business) is creditworthy. It’s important that you take the time to set the proper credit controls for your business before you begin to offer credit.
Analyze the Cost of Your Service
Before you decide to offer business credit, you should first analyze the cost of your service. If you’re providing marketing to the legal field and your target market balks at your price on a regular basis, then there could be an issue. Make sure that you’ve completed enough market research to know if your rates are competitive. If your rates are competitive, then you may want to move on to the next section.
Create an Ideal Client Profile
If your price point seems right, but you’re hearing no from your target market than you’re hearing yes, then it’s time to take a look at who you’re targeting. Keeping with our example of someone who compiles and implements marketing strategies for lawyers: if you’re charging $1,000 a month for social media management, would it be a good idea to target someone who just passed the bar and opened a law firm? While they definitely need your services, they may not be able to afford your services. Whereas, if you find an established small law firm that is looking to grow its current clientele base, they’re more profitable and are more likely to say yes to your services.
Creating an ideal client profile means that you sit down and think about the ideal client for your company. It means that you would think about their industry, their specialty in the industry, their needs, their desires, and their profitability. They may all have the same problem, but can they afford to have you solve the problem?
Why You May Need to Extend Business Credit
If you’ve determined that your price point is right and that you’re targeting the right market and you’d like to continue to offer services to clients or bring in new clients who cannot afford to pay your full fee upfront, you may need to extend business credit.
It's important that you make sure that the other business or person is creditworthy. This includes performing some sort of credit check, checking references, and setting the right credit limit. You can even ask for a down payment for your services. One thing to keep in mind is that it is extremely important not to provide more credit than your client can handle. Make sure that you offer an appropriate line of credit that will set an appropriate monthly payment that they can afford.
Business credit means setting up a payment plan. When you set up the ability for clients to use a payment plan, you make it easier for them to get the services that they need from you. Just keep in mind that there is always a risk of non-payment if someone defaults.
Extending business credit has the potential of growing your business. Just remember to set proper credit controls. Need help? Contact Clients ARM now. We have more than 30 years of director-level experience. We can help you set the right credit limits for your clients. We can even help you if you have clients who are past due. Call us now to learn more about our full line of services and book your free process review.