Managing business finance involves several steps including determination of credit policy. A business should have credit policy in place, whether it's extended to existing or new customers. There are two basic points to a simple customer credit policy. One, it should seriously investigate credit-worthiness of each business and two, it should limit credit risk. A businessman is supposed to keep in mind the business should not extend credit beyond its profit margin no matter how credit-worthy a customer is. This policy makes sure in case the business is not paid, at least its expenses are paid. Setting up a comprehensive credit application measures customer's credit-worthiness. A comprehensive credit application should include the following:
Names, social security numbers and address of phone and fax number, industry, trade payment references, bank references, name of the business, phone, address and fax number, business or personal references, the number of employees, personal guarantee business owners promise to pay in case their corporation does not pay and any other names the company does business. Credit application is expected to specify credit terms and the consequences in case one fails to meet them. Indicate the late fee charged and the customer liable for attorney fees if any. The collection costs incurred at any time should also be included not forgetting the venue each suit is filed.
Credit application forms are reviewed by an attorney specializing in creditors' rights. This ensures the application is in line with one's area regulation. A business owner should verify the information contained in each application filed by a customer. Contacting credit reporting agencies is one way of verifying the information. Credit report sometimes is unreliable. That is why it helps to call others in the industry as well to determine a company's reputation and payment record. Industries have associations trading in credit information. The use of intuition while working with customers helps. A client may large credit and may or may not be credit risky. A businessman should trust his / her instinct when it comes to determination of whom to extend the credit to.
Survival or failure of the business depends on the component of controlling when you get paid. You should think when bills are due to ensure you have a payment schedule in place. By doing this, you get paid in time to settle your bills. Taking advantage of pre-pay and early-pay discounts saves you hundreds of dollars in the course of the year. There are ways to strengthen an existing credit policy not working for the business. The tips to apply include:
• Every account should be up to date on payments. If not, you should start to work now to get them up to date.
• Ensure you have a signed credit application with the current contact information on file for each customer
The first item sometimes takes time depending on number of past due accounts you have. Not having many past due accounts gives the best result when you call them. Start with customers with the most debt and progress to those with less debt. You may need to send the account to a collections agency to get everything up to date. Having your credit in control ensures you are managing business finances easier.
Source by Jone R Brown