Getting paid for your shipments in a timely manner can make the difference between success and failure in your business. Should you extend credit to your customers?
I spoke to a potential client recently who had shipped an account $100,000 in merchandise without checking to see if they had good credit. They shipped on open terms so they were totally at risk for not being paid. They weren’t and had to sue the customer. They won, but still have not seen a penny of their money and it is going on 3 years. This was a huge order for them as their company was small and it may end up putting them out of business.
There are many ways a small company can handle payment from their clients. They can ask for a percentage of the order when the order is placed and do the balance open terms or COD. They can ship the entire order COD. They can ask for a credit card and charge the card before they ship. Or they can ship on net30 terms and extend credit to their customers.
While prepay, cod, and credit cards are the most desirable way for a company to ship because they don’t have the risk of not be payed, it is not always easy to get. The challenge that many new and small companies face is customers don’t always want to prepay, give a credit card, or have a box come COD. Many want open terms. So what should you do? This is a serious business decision that only the owner can make. It really depends on how risk averse the owner is. Is it worth it to take a chance on the clients or would you rather not take the order if they are not willing to pay in advance.
One way to mitigate the risk is to hire a good credit reporting agency and make sure that the store has a good history of credit with a good rating. Then if they don’t have good credit you can offer the other methods. The truth is there are no guarantees. Business always has some risk. But, you can protect yourself as much as possible.