Extending credit during hard economic times a “Catch 22″?
As a small business owner, you sometimes have difficult decisions to make. (No kidding, Jean! ) One of these decisions is a real Catch-22: In tough economic times, when your customers are not paying as fast, should you risk losing business by tightening your credit terms, or should you allow customers some slack in the hopes of keeping their business?
This is not just a problem in difficult economic times, but you will see more customers taking longer to pay when times are tough.
If you offer 30-day terms, and you see customers taking up to 60 days to pay, you could add interest as an incentive for them to pay. But even offering a discount for prompt payment doesn’t help if they just can’t pay. If you tighten up your credit policies and demand payment immediately, you may lose some customers (and most small businesses can’t afford to lose customers), but on the other hand, do you really want those slow payers?
I go back to the rule I was taught a long time ago: The longer the account is past due, the less likely that it will be paid. In other words, for business customers, you might be better off tightening up your credit policies and demanding payment in full at time of purchase. If that drives away some customers, it’s a good bet they will not be in business much longer anyway.
What do you think?
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Tags: baby boomers, credit policies, Customers, small businessRelated Stories
POSTED IN: Business Improvements
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