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What you need to know about granting customers credit

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There are many stores that will offer credit to their customers. Granting customers credit can be a bit of a risk. On one hand it will be able to allow you to have more of your products sold and you can bring in new customers but on the other hand you are going to lose money in a way as you wait on people to pay their credit card bills. Granting them credit is a risk as it does mean you will have to get them to pay you back and you are essentially giving people a loan to buy your products. Large companies find it beneficial as they can make money on interest but smaller companies don’t always have this same luxury.

When you extend credit to the consumer you need to be aware of how much you are willing to lend and to remember that you are lending your own money. You need to be sure that you have large cash reserves in order to help pay for many of the people that will be borrowing and only making the minimum payment amount.

Instead of granting credit, look at other things that might work for the customer. How about giving them 30 days to pay their bill or giving them 60 days? This way you will get the money back faster and the customer is still able to purchase whatever it is they want right away. After 60 days you may want to start charging the customers interest on the amount they owe as it can get them to pay you faster.

As you are creating a credit policy for the consumer you need to be prepared to deal with legal issues as well. Meet with an attorney and discuss credit policies so you can find a way to protect your company but also a way to recoup the money that you borrow from them. The structure of the credit policy will be based mostly on the industry in which you work along with some of the things that your competitors are using. It is an insurance protection plan for you really as it does help you to stay one step ahead of the competition.

To get started with credit you will first need to talk to your bank about a merchant account. This will allow you to process credit card payments and to also become a credit card processor. Most banks will set you up with the system and you can even create the system to work online as well. You will need to figure out which type of credit card company you want to work with such as Visa, Mastercard, AMEX, etc. Look for one that has low fees and is able to provide you with generous rates. It is also important that you consider online banking and what they can do for you as well as the customers. People love to use online banking anymore and it is a great way to ensure payments are delivered in a timely manner.

Always check your customers credit rating before offering them the card. You can talk about the card all you want but if you are working with a person that has a 580 credit score, you don’t want to extend credit to them. Make a cut off amount of 620 in order to prevent people from using the card that may not be the best about paying off the amount on the credit card.

Your customers need to read and understand the agreement. This way they are well informed when you are asking them to pay the amount that they owe to you. Mail them a copy of the credit agreement and make sure you send one that has their signature on it.

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