Why Your Business Needs a Credit Policy

If you run a business which allows consumers to place an order and then pay later, or you have a subscription model, then you should have a good credit policy in place. A credit policy will help to protect you if a customer pays late or tries to refuse to pay. It will make it easier for you to pursue people for non-payment, and will give you something to point to if you need to terminate someone’s account or take them to court for the money that they owe.

Clear Rules Create Structure

In many cases, people fail to pay on time not because they are malicious or even that they want to hold on to their money, but simply because they are forgetful. If you send them reminders and pursue them for payment then they will willingly pay up. If you allow them not to pay, and are very easy going about chasing non-payment then that will set a precedent and lead to lax behaviour in the future.

While you may not mind accommodating a long-term customer that is having a few financial problems – especially if those problems are short term -if you allow this behaviour to continue in the long term, or allow all customers to treat you in this way then you could end up in financial problems yourself. Many companies go out of business not because their yearly balance sheet is negative, but because a few late or non-payers ruins their cash flow and leaves them unable to meet their bills when they come due.

By being consistent about chasing payment and making people pay their long-outstanding bills, you ensure that late payers don’t fall further behind, and you keep your cash-flow positive. In the current economy, it is best to be the persistent, firm company because that will remind people that they should make paying you a priority. Don’t be embarrassed about adding interest charges or taking companies to court if they refuse to pay. If you don’t value your services, then there is no reason for the other companies to value them either.

If you are selling high value products, consider running a credit check on new customers to avoid taking on chronic late or non-payers. It can be tempting to try to accommodate as many people as possible, but remember that bad debts can be crippling, even for established businesses.