Why is a credit policy important
risk management
When it comes to extending credit to customers, it is extremely important that the risks have been appropriately identified and can be managed. The credit policy should clearly define the criteria for assessing a customer’s suitability for credit. This can vary, depending on the level of risk your business is willing to take.
Whether you plan to have a low or high threshold for extending credit, you should perform a background credit check on any customer requesting credit, as this will give you a good insight into how likely the customer is to repay what is owing to your business. If their payment history shows a pattern of late or missed payments, then this is a red flag that should not be ignored.
Another useful tool for assessing creditworthiness is account monitoring. You can learn a lot about a customer by monitoring how they engage with your business. How long have they been a customer of yours? Have they been offered a line of credit before and were they a good debtor? How do they respond to your business communications?
credit tiers
A good credit policy is one that is dynamic and can be adapted to the changing needs of the business, market conditions, as well as current regulations. Extending credit can attract new customers and open the door to new sales opportunities, but there are a number of factors that should be taken into consideration when deciding how much credit to extend to a customer.
Although it is important to ensure your customers are treated fairly and with consistency, credit limits should always reflect the degree of associated risk. Credit tiers can help with this challenging task, as customers are grouped according to their creditworthiness. For instance, a customer you have extended credit to in the past, without issue, will be considered lower risk than a customer with whom you have had no prior dealings.
The credit limit you set for the latter customer will likely be lower than that offered to the customer already known to you.
Legal Protection
As you can see, extending credit is not without risk, but with a comprehensive credit policy that clearly outlines the streamlined processes your business has implemented, you are taking the necessary precautions to protect your business in the event of a legal dispute.
The image portrayed by your business is important and having a robust credit policy can actually strengthen relations with your customers, as a well-written policy demonstrates your professionalism.
By creating a credit policy, you can make it clear what you are able to offer to your customers and what you expect from them in return. Both parties know where they stand and what action will be taken if timely payments are not made.
Supporting Business in all industries
If you are looking to free up valuable time and resources, rather than continue to lose precious hours chasing unpaid invoices, then teaming up with a debt recovery agency is a good option for your business. Agencies, like ours, support businesses in all industries and have access to the very best tools and strategies, thus speeding up the process of debt recovery to get your business cashflow back on track as soon as possible.
Contact Us
If you would like to put your business in good stead for the future, then please give us a on call 01603 319034 or email: info@jacksonscrs.co.uk for a free no obligation chat about your needs and how we can help.
