Credit management is a broad term to study. You have to understand the minutest details that make your credit management policy effective. While lending funds to the other party, you should document everything. You must clear the payment terms and talk about late payment charges too. It’s wise to use business credit management techniques to play safe.
If you work on a credit basis with your clients, you should be versed in knowing what to include in your credit management policy. It helps you safeguard your business from business credit defaulters. Let’s get into the details.
You should know if a party is qualified to take credit. You should set an eligibility criterion that helps you evaluate if it’s wise to offer them the credit. You should also run credit checks to ensure you are not dealing with business credit defaulters.
While running credit checks, you can review your client’s commercial credit score and credit report. It will help you know about their payment habits, credit history, etc.
Your credit management policy should clearly state your credit terms. It includes payment methods and deadlines. Besides, you can also include the interest rate as you’re also running a business and need to make money. Document everything and give it a thought if these terms are fair and friendly.
If you offer a hefty amount of credit to a customer and leave a little for other borrowers, you may not be making money. You need to lower your credit limit. In terms of MSME ratings and how MSMEs can benefit from lending or taking credit, it’s about utilizing your credit efficiently.
You must include points related to invoicing in your credit management policy. Mention that sending late invoices will have dire consequences. When you delay sending invoices, it affects the payment chain. It’s better to set terms concerning invoicing so you can save yourself from unwanted delays in payment.
Late payment terms
This one is crucial. If you don’t mention late payment terms in your policy, it may be less effective. As a business owner, you may have dealt with business credit defaulters in your journey. You know how difficult it is to recover money from then. You may have to take legal help.
When your credit policy is strong enough to make credit defaulters stay away, you can be sure that things are working in your favor. Not only do you avoid facing the consequences of late payment, but you also gain credibility as a smart market player.
Use this information when building or revising your credit management policy. If you’re dealing with a tough client who is not willing to pay back their debts, you can connect with the CreditQ team. It has a streamlined follow-up process to help clients get their money back without trouble.
In the end, you need money to run your business operations. That’s why using the best business credit management techniques is advisable.