Looking for ways to enhance your business’s appeal? Aiming to become more valuable to your customers and boost sales in today’s fast-paced B2B environment?
You might want to think about extending credit as it can be a means of fulfilling key objectives while at the same time strengthening relationships with your customers and establishing your brand as a reliable source of supply during hard times.
A majority of businesses operate with the assumption that they’ll pay over 30-120 days, and this can make it harder for them to pay cash in full at the point of sale.
However, extending credit can turn from a seamless and beneficial process into a complicated mess that could be detrimental to your business if you aren’t careful.
Here are some things for you to keep an eye out as they can turn your B2B payment and credit extension system into an unnecessary nightmare.
Keep your sales team from becoming debt collectors
Many businesses are made up of sales teams that are committed to convincing potential customers to part with money for a product/service. Sales teams can pave the way towards financial progress and can act as the fuel that companies run on.
Closing deals should be a core focus of this team and whether or not customers decide to keep their end of the bargain and pay their monthly bills on time, should not be their problem.
Too many sales teams end up spending their time chasing payments once customer accounts fall into default. Eventually, they turn into little more than bill collectors as opposed to sales experts and this multi-tasking ordeal can potentially burn your sales specialists out much faster than you’d like. It’s unfair to your sales team and ultimately prevents them from doing what they do best, closing deals.
In no time, you will notice that the business is burning through more cash than there is coming in. In order to segregate functionality, improve cost-effectiveness and optimize your departments’ efficiency, consider hiring or outsourcing collections to an agency that specializes in following up with due payments. Not only will your sales team be free to do what they do best but collection agencies are well-armed with prime negotiation skills to help collect customer payments.
Pay Attention to your Cost of Capital
Capital is undoubtedly the beating heart of many businesses. Purchasing supplies, sourcing equipment, hiring staff and building inventory don’t come without cost and this is why a willing investor that hands over a lump sum of cash or securing a business loan can be a real cause for celebration.
Many businesses overlook the fact that borrowing capital comes with a catch, especially when considering extending credit.
Capital is pegged to a cost in one form or another and this is important to keep in mind when approving credit for customers. Interest, opportunity costs and a myriad of other hidden costs are always potentially connected. What could you be doing with that cash if you got it 1-3 months before you thought you would?
Credit policies should be created with these factors taken into consideration. Extending credit could be a cause of money being lost due to the time it takes to collect. The cost of capital and the expenses that come with it should be looked at closely.
Don’t Forget the Expense of Payment Methods
Digital innovation has become more and more critical in an age that demands speed, seamless transactions and added security. Electronic payment methods such as PayPal, Square or Apple Pay help businesses send invoices and collect payments faster than ever before. But have you considered the costs that come with these modern conveniences?
A large number of these services charge a percentage of the payment amount per transaction. Some methods even involve hefty monthly fees on top of what must be paid per transaction. Monthly customer payment expenses can easily creep into the thousands and credit platforms can cost you as well.
Is it really worth it? Keep that question in mind when researching services that are vital to the business and factor in the costs to your credit policies. By preparing for these additional costs, you can adjust your credit extension policies accordingly.
Cash Flow Makes a Difference
You’ve probably heard that half of all small businesses purportedly fail within the first five years but did you know that many times, the key culprit is a simple lack of sufficient cash flow? Those that struggle with their cash flow from the get-go, often end up trying to acquire high-cost loans, enter reverse factoring agreements or rely on their own credit cards. This can obviously cost the business more over the long run, damaging reputations along the way.
Credit extension is an option for those with cash flows that are strong enough to support it. Keeping your end of the contract relies on the finances that you have. If you lack the means to provide your product or service while extending credit, just don’t do it. Instead, invest your efforts into trying to ensure sufficient, healthy cash flow during the initial phases. This way, businesses can avoid the costs of keeping up with monthly bills and expenses.
Beware of Credit and Fraud Risk
There are a lot of shady people out there and whether you like it or not, extending credit can expose your business to harm as a result of them. From the average late-paying Joe to a more sinister scammer trying to steal your product through false information, the only real solution to deal with criminal activity is tight security.
Invest in a solid credit management service that will help you prevent risks and spend on access to credit reporting platforms for thorough research. A-class credit management services assume the risk of the debt once customer purchases are approved so that can be a heavy burden off your shoulders.
Ultimately, knowledge is power. By just taking the time to learn about the many overlooked aspects of possible expenses when extending credit, businesses can save themselves the trouble of unnecessary and difficult financial strain. Extending credit has the potential to boost sales and grow your business, as long as it’s done right.