Extending credit to customers is an important yet sometimes tricky issue for businesses. On the one hand, when you extend credit you can boost sales and acquire new customers. On the other hand, it can damage your cash flow if you don’t handle the process carefully. During the COVID-19 pandemic, the credit issue is especially relevant with so many customers asking for credit.
Pros and Cons of Extending Credit
There are a number of important benefits you can reap by extending credit.
- Increase sales and attract more customers. Customers are more likely to buy your products and services if they can purchase them on credit.
- It gives you a competitive advantage. If most of your competitors are not offering credit, you can set yourself apart. This can be an effective selling point, especially during difficult times.
- Strengthen your reputation. Credit provides greater access to your products and services. It’s proof that you are a stable business with ample resources. During the COVID-19 crisis, it also gives you a chance to help other people and businesses in your community.
There are also a few potential drawbacks to extending credit.
- You always have the risk of customers who pay late or not at all. Currently, many businesses are experiencing slowdowns or even shutting down. During a crisis, more people need credit but it’s always riskier to extend it.
- It creates more work for you. You need to allocate resources towards managing the accounts receivable.
- It can negatively impact your cash flow. When you extend credit, you have less cash on hand for payroll, investing in inventory, marketing and other essential business expenses.
Tips for Extending Credit During the COVID-19 Shutdown
Weighing the pros and cons of extending credit is always a challenge for businesses. In the midst of a pandemic, you have to be extra careful in deciding when to provide credit. Here are some criteria to apply.
- Research your customers’ credit history. You can’t always rely on what customers tell you about their financial situation. You also have to look at hard numbers. You may want to make special considerations for the COVID-19 situation. At the same time, you have to be realistic about how creditworthy your customers actually are.
- Create clear policies. When you do extend credit to your customers, make sure the terms are clear and understood. Customers should understand when they need to make payments, interest rates and penalties for late payments. At the same time, you can be flexible. You don’t have to offer the same terms to everyone. For example, you can offer better terms to customers you’ve been serving for many years.
- Use the right tools. It’s essential to efficiently manage your accounts receivable. Track your invoices using software such as Freshbooks, Quickbooks or Norton Small Business.
Non-Recourse Invoice Factoring Can Help You Extend Credit with Confidence
Extending credit is always a challenging process and even more so during the COVID-19 pandemic. Unfortunately, many companies who traditionally were not a credit risk and paid invoices promptly, are now in a different position. Months of declined business due to coronavirus have resulted in many companies not being able to pay their vendors’ invoices on time. That’s where non-recourse invoice factoring is extremely valuable. Non-recourse invoice factoring provides businesses not only with immediate business capital, but also provides bad debt protection.
When Riviera Finance buys an invoice, we take the credit risk on that customer’s payment. If the customer goes bankrupt, or fails to pay an invoice due to credit reasons, we take the loss. Riviera has been analyzing business credit risk while providing non-recourse factoring for over 50 years.
Riviera Finance has been a leader in the field of business invoice factoring for 50 years. We can help you maintain your cash flow and make it easier for you to extend credit to your customers during these challenging times. Riviera knows how to evaluate your customers’ creditworthiness and takes on the risk of any invoices we buy. To learn more about invoice factoring, contact Riviera Finance today!