6 things to consider before giving a customer credit

Does your business have a clear strategy and approach for giving credit? It is not certain that those you give credit will be able to settle before the payment deadline. Mistakes with which customers make deals can create headaches and potentially lost revenue. Here we give you tips, tools and methods so you can reduce the risk of such happening in your business.

We make appointments every single day. In business, it is important that the agreements entered into are properly formulated in accordance with laws and regulations. Not least, you should be aware of the agreements you enter into with regard to the customer’s ability to pay. Agreements with good conditions give you little or no problems, including in the form of non-payments and follow-up work on the cases. And the more trouble-free deals, the healthier it is for your business.


Conduct a credit analysis of your customers

credit analysis of your customers

It is a very good idea to obtain detailed information about the customer before credit is granted. Here is a list of tips to make trading safer for both parties, whether private or business:

  1. Keep an overview of any payment remarks.
  2. What is the customer’s income and financial position?
  3. Do a risk assessment regarding the size of the trade.
  4. What is the customer’s payment history? Is this a previous customer, or do they have outstanding requirements from before?
  5. Demographic information. Where does the customer live? Other personal information.
  6. Credit your claim if you cannot afford a loss, for example in the form of a prepayment.

Maybe your business has sellers on commission? In such cases, you should establish a clear and safe framework with regard to which customers are granted credit. As a credit manager, it can be a source of trouble if credit is granted over a low shoe. I must hardly emphasize that you cannot take for granted that any ability to make up for it. Risk assessment is an important element here, and you have to have a conscious relationship with it. Create routines to weed out those who can’t make up their minds.


Methods and tools for conducting analyzes

credit method

An accounting is a source of a good overview of the financial situation of companies. In addition to checking the company’s accounts, you can also buy scorecards, a type of credit check. There are several businesses and debt collection agencies that can help you get to know your customers before entering into an agreement. A scorecard is the result of a statistical method that calculates the probability of default and risk associated with agreements.

Both private and business customers receive a score based on the above points. It will give you a clue as to whether it makes sense to enter into an agreement with each customer. Then you will be able to more confidently execute agreements with parties that are able to pay for themselves, not least pay for them on time. Remember that you can also claim credit insurance. The common denominator is that you should familiarize yourself with the one you grant credit to.

So keep in mind that failure to process and analyze customers is bad business, both for you and for the customer. In addition to the unnecessary follow-up and extra work involved, your business may experience financial losses and liquidity problems. Have in place a clear strategy for when to grant credit. Slurping it here will not be sustainable for your business in the long run.