Chapter 3
Extending Credit Carefully While Controlling Your Risk
In This Chapter
Figuring out whether a customer qualifies for credit terms
Compiling and applying vital credit information
Handling credit applications and financial statements
Discovering alternatives to extending credit
Securing liens and getting personal guaranties
In a perfect world, all your customers pay their bills on time and in cash. You never have to offer credit terms. But you live in the real world, and your customers want credit. Lots of credit. Odds are you do too when your business is someone’s customer.
So how do you expand your customer base and make credit attractive while controlling risks to prevent bad debt write-offs? To minimize risk, you need to set reasonable guidelines as to how much credit any individual customer can get. Yet when credit managers focus primarily on controlling risk, the perception (and sometimes the reality) can be that they’re effectively weeding out customers. You don’t want to turn customers away by creating huge obstacles to their getting credit.
The sensible extension of credit may improve your relationships with your individual customers. Some customers get credit, and for the rest you look for alternatives that work for them while protecting you. Customers you don’t give credit to can remain customers as long as you treat them with respect and give them the opportunity to earn credit terms in the future.
In this chapter, we explain what factors affect a customer’s ...
