Website design By BotEap.comExpecting returns on expenses seems counterintuitive. How can you make money with what you spend? There are several areas to target and we will examine each one in this series. The first is to use your credit policy wisely. Do you invoice your customers on a regular and punctual schedule? Your customers can’t pay for unbilled items or services, and the longer it takes them to receive an invoice, the more likely it is that payment will be delayed. While you will have paid vendors and payroll, you will be awaiting payment and perhaps financing operating costs with interest-bearing loans.

Website design By BotEap.comBe sure to clearly outline your billing terms and policies to your customers. Most customers will assume 30-day terms if you don’t tell them otherwise. And think about what your terms are before extending credit to customers. How long can you afford to carry the cost of credit? And remember that cost includes all expenses incurred to produce the product or service you are selling and the cost of incurring that expense. Even if your cash flow allows you to extend credit without borrowing, there is a cost to someone else using your money, and that expense must be added to the cost of the sale.

Website design By BotEap.comWill you offer a discount for early payment?

Website design By BotEap.comWill your margins allow you to offer this discount and still make a profit?

Website design By BotEap.comDo you have the ability to track when a discount should be allowed and will you re-invoice that discount if payment is not received on time but the customer still takes the discount? These are all important questions to answer before you decide to offer credit to your customers. If you don’t take the time to answer them, you risk your cash flow, your profits, and perhaps the success of your business.

Website design By BotEap.comIf you decide to offer credit to your customers, it is very important to have an age of accounts receivable that is easy to maintain. This document is standard in almost all computerized accounting systems. It will break down your outstanding accounts receivable into various categories based on how old the invoice date is. The most common categories are current, 30 days, 60 days, 90 days, and 90+ days. And you must be willing to make the phone calls or send the letters to request late payments. This is an area that many business owners are reluctant to do. And remember that there are laws in place that prevent you from making threats, using objectionable language, and harassing people. The best way to handle delinquent customers is to politely explain why you are calling or writing, ask if there is a problem with the product or service they received, and ask if there is a solution to correct the problem. In the event that the client does not have the funds to pay in full at this time, you may want to suggest a payment plan that they can stick to. And get it in writing with your signature along with a clear explanation of what the consequences of non-compliance will be.

Website design By BotEap.comOf course, by carefully checking your credit references, you can avoid all of the above. Ask for the name of your bank and at least three business references with addresses and account numbers. And follow up on your referrals. Check if your references are real (they are listed in the phone book, for example). Call your references and ask how long they’ve been customers, what their payment experience is, if they’ve ever paid late. There are also services that provide credit reference checks for a small fee.

Website design By BotEap.comExtending credit to your customers can increase sales if you’re prepared to do the work necessary to keep your costs down and your customers’ payments on time.