Can A Home-Based Business Offer Credit?
The key to offering credit is to start by establishing a fool-proof credit and collections system. To begin, establish a workable credit policy that screens customers carefully before granting credit. The time to start worrying about being paid is the day before the sale! A detailed credit application, designed to meet your company's specific needs, is the first line of defense.
The next step involves establishing a firm written credit policy and letting every customer know in advance the company's credit terms. When will you invoice? How soon is payment due: immediately, 30 days, 60 days? Will a late charge be added? If so, how much? The credit policies should be as tight as possible and within federal and state credit laws. Research the credit policies of other companies in your industry. You may find standards or trends in your industry or simply a good model to follow.
The third step in creating an effective credit policy is to send invoices promptly since customers rarely pay before they receive their bills. When an account becomes past due, the business owner must take immediate action. The longer an account is overdue, the lower the probability is of collecting it.
As soon as an account becomes past due, many business owners send a "second notice" letter requesting immediate payment. If that fails to produce results, the next step is a phone call. When you get on the phone, ask for payment in full. Experts claim that a personal phone call is 10 times more productive than a letter. If the customer still refuses to pay the bill after 30 days, collection experts recommend sending a letter from an attorney, turning the account over to a collection agency, or hiring a collection attorney. Although collection agencies and attorneys will take a portion of any accounts they collect, they are often worth the price paid. According to the American Collections Association, only five percent of accounts more than 90 days delinquent will be paid voluntarily.