900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
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Business Tip |
There are many ways to make your business more profitable, and sound credit policies are high on the list. The recent slowdown in the economy is a good reason to reexamine your company's policies. Keep the following items in mind as you review your policies.
- Don't be so eager to sign on new customers that you neglect to
check out their credit history. Take the time to check references,
and obtain a credit report to see how they've handled other financial transactions.
- Establish collection policies and follow up promptly on delinquent
accounts. The more overdue accounts become, the more likely
they are to become uncollectable. That cuts into your profits.
- Calculate what it costs to carry credit for your customers. For example, if your business generates $1,000 per day in credit sales, and it
takes you an average of 60 days to collect, your cost of providing credit to your customers is $6,000 per year.
This example assumes you can borrow money at 10% interest. By speeding up the average collection to 30 days, you
cut your carrying costs by half.
- To speed collections, invoice customers when you ship the goods,
don't wait until the end of the month. Make sure your invoice
clearly shows your payment terms, including penalties for late payment and the discount, if any, for prompt payment.
- Be aware of the payment cycles for your industry. For example, if contractors typically pay their bills by the 10th of the month, make sure your invoices arrive in plenty of time for them to process your payment.
Sound credit policies and adhering to those policies enhance your chances for business survival, especially when the economy slows down. Call us to review your policies or to set policies in place to help make your business more profitable.
