By Henry Brown
More and more businesses are finding themselves in need of good credit management. This, of course, has much to do with the increase in stores offering finance options. Let’s take a look at what credit management is and why it’s important to make the right decisions here.
What is credit management?
Credit management is basically exactly as it sounds, but its meaning still might not be that obvious. Essentially, credit management is the process of controlling, collecting, and managing payments from customers. Remember that we’re dealing with the financial definition of credit, here: money that is loaned. The policies for any credit or finance services you offer to your customers need to be managed correctly. They need to be developed in such a way that revenue is increased and risk reduced.
What kind of risks come with credit handling?
Perhaps the most obvious risk when it comes to businesses that offer credit is non-paying customers! While we’d like to believe in the greater good of all humanity, the fact is that you’ll always be at risk of this. However, it is worth remembering that any contract you make with your customers should be legally binding. So it’s rare that you’ll have customers who simply won’t pay. It’s more likely that you’ll get customers who simply can’t pay. How you choose to deal with this is up to you, but you do need to remember that going too easy won’t set a good precedent. Eventually, it will affect your profits.
Credit handling among different operations
The way you manage credit may not be the same across different businesses. If we take a look at a startup, then it will be much different when compared to a much larger and established company. The latter is going to have a lot more resources. So they’ll have much more freedom when it comes to allowing customers a bit of leeway with credit. A smaller business needs to be a bit stricter with its profit margins. But this also has to be combined with an additional need to build strong relationships with the customer!
The whole thing can be a tricky balancing act. And what your business actually does is going to have an impact on how you handle this, too. If you work in B2B E-commerce, for example, you may have to deal with credit in a much different way. (After all, your customers are other businesses!) Some companies prefer to look for external assistance when it comes to credit management in more complex operations.
As I made reference to above, finance options can create quite sensitive situations when it comes to customer relations. Your customers will no doubt be thrilled that you offered such an option in the first place. But what happens if someone doesn’t pay up in a timely manner?
Do not assume that a customer won’t return to you just because you’ve had to demand payment. You should be doing your best to remain friendly while also remaining firm. Credit management can be a tricky thing, but it doesn’t need to get unpleasant.
Henry Brown is an online marketing executive. When he isn’t talking shop he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.