How is credit offering right for your small business?

How to tell if trade credit is right for your small business

If you are a platform that provides credit to your customer, although the rewards can be endeavoring, it can be risky at the same time. To decide whether to offer credit to customers or not, you must weigh down all the cons and pros before offering credit for customers.

It becomes quite tough to decide about extending the credit for customers as it can be quite tough. Here are some pros and cons to help you understand in-depth retail consumer financing.

Pros of offering credit to customers

If you provide credit to customers, then they offer some significant benefits for your business. Here you can take a look at a few reasons why you may want to provide credit:

Gaining customers: With additional payment options and a more accelerated insight platform, more people can buy from your business than expected. You can launch your business to a new market of customers and extend credit to your business.

Getting people to talk: When you introduce something that benefits the customers, it will become the talk of the town. Word-of-mouth is much more influential than just advertising. This way, other people will also come to know about your business and what it offers. If you decide to extend credit for customers, then go ahead and don’t hesitate. It will help if you try to let your prospective and current customers to know about your new payment option.

Encouraging big purchases: You will sell more expensive products if you are likely to provide more credit to the customers. You can let the payment plans increase by months as this will increase much more retail consumer financing.

Showing stability: If you offer credit to customers, then it will make your company look much more authentic and established. If the business is new, it usually doesn’t have the financial stability that offers you credit. This way, you can signal customers how much it is an accelerated insight platform and show the world you are moving up.

Standing up for competition: When you offer credit to customers, it gives you the competitive edge you require, and not all of the businesses provide credit extension. You must provide retail consumer financing as an alternate option.  

Cons of offering credit to customers

If you decide to run your organization, there will always be pros and cons that will come in handy. We have already discussed the pros, but here are some downsides when you want to extend credit to customers.

Possibility to miss payments: The big downside of offering credit to customers is when they don’t pay you back. Many customers make payments on time, while some may come late. This may lead to late payments and disturbing your cash flow.

Require collection agency: If any customers stop paying the installments, you tend to lose more than just the money they have borrowed. In these circumstances, you need to hire collection agencies to get the customer to pay their bill. You need to pay these collection agencies their fee, which is an avoidable charge if the customer pays timely.

Legal fees: It is also possible that you may have to hire a lawyer and sue the non-paying customer. This will, however, lead to paying the legal fees. There is also a chance to get almost nothing of the money the customer owed you.

Careful recordkeeping: You need to step up for the accounting game when you offer credit to the customers. You may also need to create proper accounts for every customer that owns your credit. It would help if you also tracked down the credit you have offered, the credit each customer uses, and the interest they pay.

Proper cash flow: When you start to sell on credit, quick access to cash is not possible. Slow cash flow can also end up affecting your ability to pay bills, mostly when customers make late repayment.

It is your overall decision when you decide to offer credit to the customer. But something you must keep in mind is that you need not offer credit to everyone you come around. Most businesses do a credit check and extend credits to the customers. They also make sure to give the credits to the ones who make on-time payments. You will also be required to comply with the consumer credit laws when you extend credit.

If you are thinking of extending credit as a business, it is best to create a credit policy and have a lawyer verify it. It would be better if you set up an allowance for doubtful debts. Take a look at how credit offering to customers fits in your accounting.