Business Credit Policy: THE CARROT AND STICK APPROACH

CASH FLOW MANAGEMENT

Business Credit Policy

THE CARROT AND STICK APPROACH

BY Robert Inkaka Kanyamanza

Credit policy may help you collect some receivables more, but discount and penalties should be considered against the background of effectiveness and customers relations. Any resulting increase in cash flow should be weighted against cost of discount or loss of customers and sales as a result of credit policy.

ROBERTKA Business Solutions partners, specialists in developing and implementing credit policies for businesses, recommend that you:

  • Offer a discount for early payments
    Typical discount for payment within 10 days of the invoice date are from 1.5 to 3 per cent. If you decide to implement a discount, make the customer earn it – don’t accept discount on the 11th day. In any case talk to your accountant about the pros and cons because in some cases the discount could cost you more than servicing higher receivables. You and your accountant will consider working capital needs, whether you are nearing your credit line limits and competitors’ terms. If you already have a narrow profit margin, a discount may not make sense.
  • Charge interest after 30 days
    Check with your advisors for legal maximum rates and put it on your invoices. However you need to consider whether you can realistically collect and be aware that penalties may cause you to lose some customers.
  • Restrict credit
    Be careful when extending credit. check references and credit standing (through a credible credit reporting agency) before extending credit. Demand cash on delivery with new customers or those whose credits records concern you. If you decide to extend credit, tell them up-front that you cannot afford to carry them beyond 30 days. If they go over consider putting them back on cash terms.

Do you need a credit policy application for your business?
Contact us at:

ROBERTKA Business Solutions
We work hard for your success

 

RELATED POSTS:
HOME
Getting Paid: A. Basic Collection Practices
Getting Paid: B. Your First Line of Defense
The Concept of liquidity
The Secret to Maximizing Cash Flow
Getting Paid: In Between Payments Calls
THE CARROT AND STICK APPROACH
Converting Payments Into Cash: MONEY IN THE BANK

 

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We are a Media and Communication Company specialized in the production of business information contents, financial and management notions and analysis. We also produce and publish World and African business headline news. We mostly focus on producing text and video analysis covering worldwide economic, commercial, management and financial trends which have a strong leaning and inclination on African businesses and affaires. We publish under the banner of our consultancy house: ROBERTKA Business Solutions.inc Join the conversation!

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