When someone offers you goods on credit, you’ll probably agree. That’s why many credit card companies offer their unsolicited cards by mail. They know giving you the card will drive you to spend. That way, they can make money via interest charges. Many people who receive unplanned credit will use it up without thinking about repayment. And once the unexpectedly high bill arrives, they have to spread their repayments, accruing interest, and allowing the card company to recoup profits.
From a business perspective waiting for late payments affects your cash flow, among other things.
Why (not) credit?
If your outstanding payments are large enough and numerous enough, they affect the ability of your business to run. You can’t buy supplies, pay wages, or keep up with your own creditors. Debt can also lower your margins – you should consider hiring a debt collection agency in Sydney to recover the debts faster, or you run the risk of wasting time and money. Plus, the passage of time lowers the value of money, so whatever cash you recoup, its purchasing power will be lower, and the power of your profits will dip as a result.
After all, $5 in January can do a lot less than the same $5 in December. So, think carefully before you choose to provide goods and services on credit. Once the decision is made, don’t offer credit as a given. Run thorough credit checks to be sure they’re good for it. You need the client’s permission to pull their credit because every check dings their creditworthiness. If your potential debtor is an individual client, they need to sign your T&Cs, give you current contact details, and certified proof of ID.
Corporate credit checks
Businesses that want credit from you should provide more details – include three referees that can vouch for their credit status, a comprehensive list of their directors /owners/partners, and a legally vetted indemnity guarantee (which your own lawyer needs to review). All this is before you agree to the credit terms. Your customers will review the amount, interest rates, penalties, and due dates. Their signature says these terms are agreeable to them, but it’s not a guarantee that you’ll ‘lend’ them the cash/goods.
After you’ve done your credit check, then you should immediately notify the customer and deliver the goods/services. Make sure both you and they are clear about when they need to pay, and how much. Keep precise records every step of the way, both for tax reasons, and in the event, you’ll have to follow them up for (late) payments. Boston Commercial Services are available to help at any step, from sending payment reminders to legal debt pursuit, and cash flow is more manageable if you approach credit with caution from the get-go.