There is much debate over whether or not extending net terms to customers is a smart practice for small businesses. There is risk involved, with providing a service or product and trusting the customer to pay you back at a later, specified date. Some say it is harder for small businesses to monitor their credit department, as they don’t have the tools like Fortune 500 companies, but thanks to emerging technologies, handling their customers’ payments is easier than ever. The truth remains that, if your business model supports the practice, extending credit opens immense opportunity for your small business.
The 5 Reasons Every Small Business Should Be Extending Credit
1) CUSTOMER LOYALTY – Extending credit is the easiest way to tell your customers you appreciate their business. When you provide them with the opportunity to be more flexible with their cash flow, and show them that you really do trust them, this isn’t going to be something they forget. They will keep coming back to you, not only for the offers you provide, but for the fact you’ve made them feel appreciated.
2) FINANCIAL REPUTATION – Extending credit is a small act that can send a large message. To other companies, banks, customers, and so forth, if your company is providing credit to customers, it shows that your own institution is financially healthy. To make extending credit a reality, you, as a business entity, have to have a strong cash flow and access to working capital. By simply extending credit, you are saying to the public that this is fact, which immediately boosts the reputation of your business.
3) PRODUCT REPUTATION – Small business owners are at times hesitant about payment terms as they are afraid that customers will receive their product or service, not be satisfied, and then refuse to pay. However, by extending credit, you are letting customers know you believe in your product, and support it’s value. You are willing to take the risk, because you know your customer will be satisfied.
4) COMPETITVE EDGE – Let’s face it, not all businesses are extending credit. Therefore, those businesses that are immediately gain a competitive advantage. If a customer has a chance to have more control over when they pay, giving them more of a handle on their cash flow, they’re going to be attracted to the company that makes this possible. Beat your competitors to it and be the one extending credit.
5) INCREASED SALES - Without a doubt, every small business wants a way to increase sales. Extending credit is the most cost-effective and stress-free way to make this happen. Think about it: if you are giving customers more time to pay, they automatically have a bigger buying power. Not only do the above reasons contribute to increased sales , but the sheer fact of your customers having longer payment periods means they can purchase more from you.
It’s simple. If your business model can support extending credit, there is no reason you should not be. Thanks to advancement in technologies, small businesses can run their credit process seamlessly, without stress, giving them opportunity to take advantage of all the immense benefits extending credit can have for a company.