The Pitfalls of Sell Now, Paid Later
Generally a credit arrangement arises in situations where a business provides its customers with goods and services, which are paid for at a later date. From the business's point of view, this arrangement could improve customer satisfaction and retention and increase its overall competitiveness in the market place.
However entering into credit arrangements with customers could also affect a business’ cash flow and leave it severely out of pocket. There are a number of issues to consider for businesses that are considering providing their customers with goods or services on credit including:
- Whether the business has a comprehensive credit application form that covers areas in whichthe business will be in a position to be able to assess the ability of its applicant customer to pay for the goods or services at a later date;
- Whether the business has appropriate standard credit terms and conditions that will maximiseits prospects of recovering any unpaid monies from its customers; and
- Whether the business has suitable procedures in place for assessing and then monitoringthe ongoing provision of credit to its customers.
A comprehensive set of credit terms and conditions enclosed with a standard credit application form could mean the difference between a business being left out of pocket and a business recovering money from its debtors. A business that has a badly drafted set of credit terms and conditions or none at all could expose itself to expensive legal battles if it seeks to recover unpaid monies.
Another costly pitfall for business can be the failure to have a written manual in place that sets out its procedures in:
- assessing any application for credit
- determining the maximum amount of credit that should be provided to the applicant customer
- reviewing and monitoring its customers performance of its payment obligations and
- dealing with overdue accounts.
Consideration of these issues when providing any type of credit could save you a lot of time, stress and money, if the customer does not repay monies that have become due and payable to the business.
As is always the case in a business transaction, never assume! Rather, consider all issues and get advice if you need it.