Managing: 4 Keys to Extending Credit

This week I’d like to share some helpful credit advice from my colleague, Bob Paul, at Chicago SCORE.

“Revise your credit policy now to avoid problems associated with extending credit later” says SCORE counselor Bob Paul.  (He was vice president of credit and collections at John Deere for a multi-billion portfolio of loans to businesses and individuals.)  Here are his 4 keys to extending credit.

1) Avoid extending credit if possible. Get paid on delivery, in advance, or at specified milestones during a project. Accept credit card payments where possible. Extend credit only if it is demanded in your industry. Providing credit to your customers eats up your cash and costs you money in terms of added expenses and a higher level of debt. Be sure you are appropriately compensated either through interest collected or through your pricing strategy.

2) Develop a credit policy which defines procedures to approve credit and authority levels within your organization. The rules may vary for granting larger credit amounts. The procedures may include requesting and reviewing the customer’s prior years tax returns, historical balance sheets and income statements, credit references, and credit reporting agency data. Higher levels of credit require greater scrutiny. Know how to evaluate creditworthiness. Be aware of all credit extension laws that are applicable to you and your customers. Follow them carefully. Failure to do so may result in you losing your claim to the account (and you may also be liable for punitive damages).
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2 Comments November 11, 2008