Credit Control Top Tip Number 1 – Don’t offer credit (21 February 2010)
I have been promising for a while to produce some Top Tips on credit control and how to ensure you get paid on time – so here we go! The plan is that this weekly series will follow the process of making the decision to allow credit all the way through to debt recovery action.
Tip Number 1 – DON’T OFFER CREDIT.
OK – surprising perhaps for me to recommend this but there is very often a view – particularly from newer businesses – that they must offer credit to their customers. This is not the case and you need to consider the industry you are in.
If you are a plumber’s merchant supplying only to the trade then to compete you will have to offer credit terms.
If you are selling items to consumers over the internet then the norm is cash up front.
If you design web sites then staged payments should be the norm – e.g. 25% payable after the initial brief has been agreed, 25% on completion and further payments in between whilst work is in progress, dependent on complexity.
Having said that there can be differences within an industry. I know, for example, of a copywriter who always insist on payment up front and another who offers 30 days from date of invoice.
Before offering credit yourself therefore ask yourself:
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Can you afford to? Will cash flow allow?
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Can you afford not to? What do your competitors offer? Will you lose business if not offered?
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Can you offer a split payment? Part up front, part on credit?
Note that we are not discussing yet whether your customers are creditworthy (that will come!) but merely whether you need to/should offer credit yourself.
There is no simple answer but if you are supplying only to consumers (i.e. not businesses) there should never be a need to offer credit, if you are dealing with businesses then consider what is the norm within your industry (if you don’t know, ask me!) and what you need to offer to gain the business.