You've Decided to Extend Someone Credit

                                 Now What Do You Do?

 

              By Marcus P. Meleton, Jr.

 

              It would be nice to do business in a perfect world where everything is done on a pre-paid

              basis. But you don't operate in a perfect world. Extending credit is part of doing business.

              This is tough for home business owners, who are taken advantage of in credit situations far

              more often than other types of businesses. Today's business climate has also become much

              less ethical. Declaring bankruptcy and reforming companies are now common tactics to

              avoid paying debts. Once you decide to extend credit to another business for your goods or

              services, consider these important actions to increase the odds of getting paid.

               Keep Credit Terms Clear: Make sure that the debtor understands when you are to

              receive payment. The standard term is 30 days. Watch out for people or companies that

              habitually take 90 to 120 days to pay.

               Ask for a Deposit: Offering 100% credit is only one option. You can ask for a partial

              payment up-front of 25 or 50 percent. This shows good faith on both parties.

               Get Payment for Expenses: Add up expenses you will incur out-of-pocket to complete

              your work. It is reasonable to request these be paid in advance, and that credit be only

              extended for your labor, overhead and profits.

               Ask for a Bank Credit Card: One option is to use a credit card from the person whom

              you are doing business to secure the debt. You could obtain an agreement to be able to bill

              the card at a future date, after the services are complete.

               Invoice Immediately: When you complete the work, bill the client promptly. Spell out

              again the credit terms on your invoice. Avoid clutter in your invoice.

               Offer Incentives for Prompt or Early Payment: Offering discounts for early payment can,

              in the long run, cost you much less in collections aggravation than the actual amount of the

              discount. As an example, offer a 2 to 5 percent discount for payment within 30 days.

               Establish Finance Charges and Penalties: Set interest penalties that begin after 30 to 60

              days on the unpaid portion of the invoice balance. But first, check to see if your state

              requires written consent, and if so, make it part of your credit contract.

               Use a Collection Agency: Don't wait until accounts get delinquent before you contract

              with a collections agency. Once it becomes clear you are not going to receive payment on

              the account, it is better to let an agency handle collections. Agencies have more clout

              because they will eventually file reports on dead-beat businesses that will appear on that

              business's credit report.

               Move Quickly on Overdue Accounts: The longer an account goes unpaid, the lower the

              probability you will get paid.

 

              When offering credit, accept up-front that you are going to have accounts that go bad and

              leave you "stiffed". It's unfortunately part of doing business. Be careful when extending

              credit, be vigilant for signs of payment problems, and be decisive in resolving them. HBM