Whether or not you will be extending credit to your customers in your home based business is a decision you will eventually have to make. Every business owner will have to write off between 3 and 5 percent of debt as bad, as long as debt is managed correctly. If you have just started your home based business, cashflow is very important, and so you do not want to necessarily turn potential business away just because you think if you go extending credit you will not get paid. There are ways to help you determine whether or not you should extend credit in your home based business.
Some home based business owners have a strict policy regarding up front payment or even pay upon delivery payments. However, if you want to keep your business competitive, extending credit is one way of increasing business. Extending credit, though, does not mean you do it willy-nilly to anybody who wants it. After all, some services or products are worth a lot of money, and not getting paid can cost your business significantly.
Therefore, you need to take some specific things into account when you are considering extending credit to a client. First, take a look at the character of your client and their overall willingness to pay debts. What is their history and your experience with their management? Is there a history of unpaid debt or litigation? Taking a close look at the client can help you determine whether extending credit is in your business's best interest.
While you are taking a closer look at the character of the company when determining whether or not you will be extending credit to that client, you should also take a close look at the financial capacity of the company. The company's character tells you if the company will be willing to pay, but looking at the financial capacity will tell you if they are able to pay any debt.
When you are considering extending credit to a particular client, finding out the character and financial capacity of the client comes easiest from having them fill out a credit application and running a credit check. Beware of extending credit to those clients that balk at filling out a credit application, as most reputable clients will understand your concern. Also, double check credit references on the application before you go extending credit to your client.
Your policy on extending credit is important here, as you need to know what to do with the information you get from the credit check. You need to know how much negative information makes you uncomfortable enough to not extend credit to that client, and if you will be requiring pre-payment in full or just partial payment. Also, if you do decide on extending credit to the client, then you need to make sure the payment terms are very clear.
Read the rest of the article here: Extending Credit in Your Home Based Business.
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Copyright © Charles Fuchs is an established Six Figure Income earner and one of the top online marketer's. He specializes in helping people start their very own Work at Home and Home Based Business on the internet.
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About the Author
Copyright © Charles Fuchs is an established Six Figure Income earner and one of the top online marketer's. He specializes in helping people start their very own Work at Home and Home Based Business on the internet.