Offering credit often encourages your customers to speed up or increase the amount of their spending. It gives your business the much needed impetus to gain a competitive advantage in your target market. However, balancing the potential for increased sales with the risk of reduced cash flow is an important part of managing risk in your business.
Below are ways offering credit can help your business growth:
Retain Your Customers
Businesses especially the small businesses need cash to continue operating. Every business wants their customers to make large purchases but too much credit to too many customers to get them to buy, could result in cash-flow problems. Not offering enough credit at all however, may lead to losing sales to customers who can get credit with your close competition. A buyer in desperate need of supplies or inventory would have to go with a supplier offering purchases on account as opposed to one that only accepts cash payments. To retain these customers, there is need to find the right mix between offering credit to your customers and cash flow for your business.
Gives your Business a Competitive Edge
Offering credit can give you a competitive edge over businesses that do not offer credit. Customers may feel that you are treating them with trust and respect by offering them credit. As they pay their outstanding balances, they will be more likely to return to you because you have established a relationship with them. This is because credit separates the pleasure of buying from the pain of paying. In other words, customers tend to buy more when they do not have to pay on the spot. You can build your business revenue much more quickly by offering credit than you would if you allowed no credit. However, it is important not to get greedy and offer every customer credit. You need some cash customers to keep cash coming in every month.
Increase Traffic to your Business
Another advantage of offering credit is that it can increase traffic to your business especially when it is online. When you advertise that you are having a credit sale, it brings customers in the door. The level of success that a credit offering promotion has can vary, but in many cases it presents your business with more opportunities to make sales.
Increase Profit Margin
In some situations, you can actually increase the amount of profit margin that you bring in. For example, if you operate credit for timely payment, it will only affect some of your accounts. Customers might be willing to close the deal because of the potential for credit, but then few of them will get around to actually claiming it even if the cost price of the products and services offered is more than if they are paying instantly.
Factors to consider before offering customers credit
Risks involved in offering credit - unpaid debts can pose a risk to your business. It is important to assess the risks involved before offering credit. How well does your cash flow allow it? Does the customer have the financial capacity to service the debts?
Perform a credit check - A credit check is another important strategy for managing the risks of credit. Before you offer a customer credit, have them complete and sign a credit application form and agreement. The identification and contact details of customers should be verified. To do this, your business can register with CRC Credit Bureau as a member to enjoy this service at very affordable rates. Joining the bureau also allows your business see all the other credit transactions the customers have been involved in and how they had performed.
Decide whether to offer credit - Registering your business as a member of CRC Credit Bureau gives you access to a rich database of credit information that helps you make informed decision making on credit related evaluations based on customers’ repayment behaviour and capacity revealed in their credit history.
Provide a prompt written response - After receiving a completed credit application, provide a written response approving credit, declining credit or requesting further information
Keeping records of debtors - Regular submission of the credit data of credit offered to the credit bureau helps your business keep track of customers who owe you and other lenders money. This data is well processed into credit reports that are used to make informed credit decisions and increase access to your customers. The reports also will help you follow up overdue payments, know the debts your customers are owing outside and better control your cash flow.