The Pros and Cons of Extending Credit to Customers


These days, there are more options than ever for accepting payment. It’s easy, however, for a new business owner to get caught up in the excitement of making sales while simultaneously forgetting the necessity of having a well-thought-out approach. For example, which payments will you accept? How will you handle payment plans? What collection methods should you use to ensure debts are paid? These considerations are essential to any small business’ success.

Credit can make or break a small business. A too-lenient credit policy can set the stage for collection and cash-flow problems later, while a creatively and carefully designed policy can attract customers and boost your business’s cash flow.

Benefits of Extending Credit to Your Customers

Allowing customers extra time to pay their bills can provide a number of advantages to your small business. Extending credit to customers is a way to increases sales and provides payment flexibility for consumers. While there are benefits to extending credit, there are also certain issues you should keep in mind. As such, here are the pros and cons of extending credit to your customers.

Pros of Extending Credit

  1. Increases sales: When customers have a longer period of time to pay you back, customers tend to purchase more goods and services from you. More buying power for your customers translates to increased profits for your business.
  2. Improves customer loyalty: When customers have options to pay, they have more control over their spending power. They will know that they can rely on you to provide them with the products and services they need without having the cash upfront. This will likely lead to customers returning over and over to you due to trust and loyalty created by the flexibility you offer.
  3. Creates a competitive edge: If your competition doesn’t extend payment options and credit to their customers, you gain a key market advantage. Customers will be more likely to choose you over them.

Cons of Extending Credit

  1. Risk of Delayed Payment: Depending on the payment terms, there will be a delay between the time you provide goods and services and when you actually get paid. mitigate this, you can opt to work with an invoice factoring company to get the cash you need. The costs may or may not be worth the benefit and you will need to weigh this carefully for your business.
  2. Risk of Not Getting Paid: There is always a risk that you won’t get paid. The best way to counter this risk is to ensure that you check a customer’s credit history, require deposits on payment plans, and stay on top of your delinquent accounts. CINCB offers credit report services for businesses, as well as mechanism to help improve your collections.
  3. Time investment to track unpaid accounts: You will have to be highly organized when it comes to managing your accounts receivable. Someone in your business will need to keep unpaid invoices top-of-mind and have processes for collecting those debts through various means. In most cases, it is much simpler and easier to outsource this to organizations such as CINCB, who can handle the entire process.  

Bottom Line

Overall, there are significant pros and cons to consider when extending credit to your customers. Regardless, the risks involved may be worth it. For many small business sellers, extending credit to customers is essential to business growth. 

When developing your credit policy, set clear terms, track payment deadlines, and only extend credit to customers who you trust. CINCB has the tools you need to formulate a strong credit policy and guidelines to ensure the success of your business. And when you do run into problems collecting delinquent or unpaid debts, a collection agency can be a vital companion to your business saving you time and effort and yielding more revenue recovery. CINCB is there to help you through the process.

Contact CINCB today with your questions. As a reminder, you can find sample documents, a credit policy handbook, and more on our website. Just click here to download. To get started right away and access all the tools you need, click here to become a member.

CINCB has been established since 2002 to provide debt collection and credit reporting services. CINCB serves over 260 creditors locally and internationally with a local team of highly experienced agents ready to serve you.  Services are delivered fully online at www.CINCB.ky.  Contact us today to find out more.

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