Credit management is the process of approving credit for your customers, recovering your funds without failure, and supporting your business with this approach. With credit management, you can expand your customer base, extend your outreach, and scale your business overtime.
To help you learn more about this process, here’s an overview of credit management and achieving your financial goals with it.
Review Your Finances
In order to get the most out of credit management, you need to determine where you stand in terms of your finances. This calls for you to take a good look at your business’ financial situation, take account of its assets, and review its debt. This way, you can make financial decisions that support your long-term goals and allow you to plan your next steps properly.
Check Your Own Credit
Before you can start offering credit to your customers, you have to check your own credit score. Similar to how individuals use credit monitoring services, you can also look into your credit as a business. This gives you an idea of how much extra financing you can get. With that, you can also reach out to investors who could support your operations.
Plan How to Assess Customers
In order to grant credit to customers, you have to know if they have a strong credit profile. There are many ways to determine that, which is why you need to take some time to see exactly how you will go about this process. Typically, this involves looking into customers’ credit history. You can also use CRM software to manage these details in one place.
Define Your Credit Limits
After you have put together a plan to assess the creditworthiness of customers, you can determine how much credit you are willing to assign to them. Most businesses go about this on a tier-based process, which is what you can follow as well. This also helps you avoid financial pitfalls that could be costing you thousands of dollars in business losses.
Set Payment Terms
Before you can hand out credit to everyone, you need to set clear payment terms to protect your interests. This includes drafting a detailed agreement that your customers can understand, as well as finding a business payment platform that works for recovering your funds. This makes sure that you are ready to offer credit without putting your business in harm’s way.
Double Check Proposed Conditions
Once you have set your payment terms, you should also double-check them to ensure their legal standing. You can get advice through an online legal service or reach out to business attorneys or tax experts in person. This can determine that the conditions you are proposing have strength in the court of law in case anything goes awry. This protects your business’ funds and reputation.
Have a Recovery Plan
In case customers end up defaulting on their payments, you need to have an established plan for recovering your funds. Some businesses might take the collateral route, while others report missed payments to collections. You can think about all your options to choose something that works for your business, without giving your brand a bad name. This can save you from one of the most common business accounting mistakes.
Be Clear in Your Communication
When extending credit to your customers, you have to be extremely clear in your communication. This includes your agreement documents and your notification emails, as well as any other correspondence that you end up having with your customers. This not only tells your customers what they are getting into, but also helps you evade a variety of issues with recovering your funds.
Check Your Accounts Regularly
You should also make a habit of checking your accounts on a regular basis. This lets you review your finances, and also keeps you from breaking the bank with bad credit management. You can do these reviews monthly and quarterly to stay on top of your finances. Your stakeholders can also suggest which frequency works best for you.
By going through this guide, you can learn the basics of credit management. This can empower you to strengthen and grow your business exactly how you want through this process.
