3 Things to Consider When Offering Credit To Your Customers

When you’re running a small business, you’ll do almost anything to make a sale. And while this can be great for acquiring more customers and creating a solid name for yourself, this isn’t always the best thing for your bottom line, especially if you’re slashing your prices or otherwise jeopardizing the financial health of your business. One way can do this is by offering credit to your customers when you shouldn’t. So to help you avoid making this mistake, here are three things to consider when offering for your customers or clients to make purchases on credit.


Only Give Credit Formally

Especially in the early days of your business—when you may not even be referring to your business as “my business”—it can be easy to fall into a habit of extended credit in a very informal way. Carol Tice, a contributor to AllBusiness.com, shares that when you allow someone to pay you tomorrow or next week, that’s extending credit. But if you do this without keeping track or do it too often, it could really hurt your business. That’s why Tice recommends only extending credit when you can formally do it. So how do you make extending credit a formal affair?

Creating Your Credit Policy

In order to extend credit properly, you’ve got to create a credit policy that you understand and can implement. According to the staff writers of Entrepreneur.com, this will vary based on your industry. As a good starting point, research what others in your field are offering with regards to credit. You may want to use your credit policy as a way to bring customers over from your competitors, but you also don’t want to go so far as to either take on bad credit risks or lose money for yourself. Try keeping your policy as simple as you can while also covering all your bases for any future mishaps.

Do Your Due Diligence

This may go without saying, but one of the best things you can do when offering credit to a customer is to run a credit report. Even if you’ve been doing business with this person for years, it’s always a good idea to have the full picture of the health of their credit before extending credit. The U.S. Small Business Administration shares that this is the first thing you should do before you get any further down the sales process if your customer or client will need to make their purchases on credit as to avoid having to back out of the sale. Without doing your due diligence to ensure the person you’re extending credit to is a good credit risk, you could end up way over your head here.

If you’re considering offering credit to your customers or clients, use the tips mentioned above to ensure you go about this tricky business the right way.