11/15/2003
Credit and Collections
by Paul Considine, Center Director, SAU SBDC
Managing Risk…Credit and Collection
Whenever you allow your product or service to go unpaid for you place your business at risk. In the ideal world we should always receive payment when the goods are delivered, but that is not how much of the business world works. In some industries the norm is to allow credit to customers. Just think about your Doctor or Dentist working on a cash only basis.
To help minimize the risk of allowing credit terms always be sure that the customer is aware of the payment schedule. Written policies are a must for the customer and also for your employees that administer the credit terms. Just how much credit you should allow is also a key factor in the policy. Extending one-customer’s terms for a large amount greatly increases your exposure to risk. The saying “never wager more than you can afford to lose” is a good measurement as to how much credit you should allow.
Collection of the payments is a by-product of the credit you allow. You actually create more work by allowing credit. The collections policy must be administered firmly but with proper consideration to the customer. Being too firm and brash at collections time can cost you a good customer.
For more information on Credit and Collections visit our web site:
asbdc.ualr.edu/bizfacts/6002.asp.
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