Should You Sell to Customers on Credit?
The best thing about retail sales is immediately getting paid after making the sale. The customer pays in cash or uses a credit card and the transaction ends right there. Unfortunately, the process isn’t the same for everyone, some businesses are different.
Credit requests or demands usually put you in an odd position, especially if you own a small or medium-sized business. Selling on credit to a client who has a good history is a good decision, provided your current cash flow can support it. On the other hand, setting terms with a client who has bad credit can go otherwise.
Always remember, the only thing worse than losing a sale is making the sale and not getting paid for it.
Offering Credit can be a Sales Tool
Offering credit to commercial clients can be an important sales strategy. It can help you close a greater number of deals, especially if you can afford to be more generous than the rest of the market. If utilized cautiously, credit can help you grow much faster and take things to the next level.
However, credit can also become a double-edged sword as you undertake additional financial risks – sometimes unnecessary. Unpaid Invoices from clients drag your finances and if you give credit to the wrong client on a bulk sale, the damage may be beyond recovery. Therefore, offer credit very carefully.
Who should be offered credit?
Offer a net 30-day deadline only to companies that you think can afford to repay in time. Examining this creditworthiness may appear difficult, but it is often very productive. Commercial credit reports on companies are easily available. Unlike consumer credit reports, corporate credit reports don’t require special permission.
The information in these reports is helpful. They accumulate the payment histories of your clientele and offer a way to determine if your potential client is creditworthy.
At times, making the right credit decision is like hitting the bullseye, especially when the information is distorted. Thus, it’s not possible to be right every time. Your objective should be to manage risk and make informed decisions rather than eliminating all risk.
What if you can’t afford to offer terms?
The challenge that small companies often come across is the fact that offering credit creates cash flow problems. Non-payments and delayed payments often result in lost revenues. If you don’t have reserves sufficient to cover your expenses while waiting for payment, you’ll eventually run into problems. These problems can affect your business when it’s growing and derail your finances.
One way to solve this problem is to become a sword and hover over your client’s head. Not all of them but only the spoiled ones. One easy way to get your money recovered is to use the Udhaar app. This app is a blessing for Small retailers who usually trade on credit and have their payments outstanding. With the Udhaar app, you can send auto-reminders and customized reminders with a deadline and details of the transaction to your creditors and get your money back 10 times faster.
One last word of advice
If you have never offered credit to clients, you should start now. Start slowly, give yourself time to understand how your cash flow works, and be prepared to deal with sudden cash shortages. Lastly, start building a reliable cash reserve to tap if clients start paying slower than expected.