The Small Business Specialists
Phone: 13 12 49
It is sometimes possible to increase sales by granting credit to selected clients who may choose to do business with you because of the convenience offered by a credit account. If you choose to provide this option be sure to develop a sound credit application process which includes a thorough check of client credit ratings before granting approval.
Allowing some clients to purchase on credit is like offering them an interest free loan, and you are not obliged to provide credit to risky clients. Allowing clients to defer payments increases the risk of bad debts occurring and draining your cash flow, so it's vital that you identify good customers and screen businesses with a poor credit history to minimise bad debts and avoid cash flow problems.
Develop a credit application form and have the draft checked by your lawyer. The credit application and approval process could include, but is not limited to the following steps:
You may find it necessary to reject credit applications in some cases. Rather than risk losing the client entirely, you might suggest alternative payment methods while your client establishes a trading history with you. Review the client's situation after a specified volume of trade, number of orders, or period of time.
The alternative methods may include: