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Guide for Small Business Sales on Credit
Starting a business can be a stressful undertaking. Bringing together
ideas, physical features of the business and the financial aspect can
prove to be a hefty workload even for the strongest workaholic. One way to
lessen the mental burden is by taking care of the financial aspect with a
business loan. Knowing that you will be able to afford to start your
business and have a budget to work with can help bring all other aspects
of the business in line. You can handle choosing a business location,
inventory and even supplies once you have your business finance handled
with a business loan.
Taking into consideration the success of my article on Cash Conversion
Cycle, I decided to write a little bit about how small businesses get in
trouble with their customers when they extend credit. Most businesses, at
one point or another, have to deal with past due or uncollectable
accounts. Nevertheless, You can lower your business exposure to this
problem by taking preventive and proactive measures.
A business loan helps you acquire the right tools for your business that
can help your business grow quickly. These tools may include proper
location, advertising, marketing, and human resources. You may have a
bright idea but that idea may never materialize if you do not have
adequate financing. That same idea may have the potential of generating
huge profit for you. Acquiring a business loan may give you the right
tools to work towards the realization of your dreams.
Key Features
Standard business loans are available with the amount between £2, 000 and
£25, 000 which is the biggest benefit of these loans. These business loans
may require some form of collateral and an arrangement fee. In general,
they have some of the same key features regardless of the lender, terms
and the type of loan you choose. They are:
* Interest rates and repayments are fixed
* Loan protection insurance is available
* You choose the repayment term
* You decide the amount you need for the loan
* Usually a quick, easy application and approval process
* You spend the money on whatever you want
1) Make it easy for your customers to buy so that they won’t need to ask
for credit. This includes accepting credit cards and alternative methods
of payment such as paypal or Collect on Delivery (COD). The best way to
avoid risk is to shift the risk to someone else.
2) Institute a formal system for your customers to apply and be qualified
for credit. This means that your customer will have to provide you in
writing his request for credit. I understand that a lot of small business
deal verbally when it comes to these types of transactions. If I could
give you some direct advice, it would be to stop doing business with words
and start putting things in writing. I prepared a sample commercial credit
application form so that you can use it in your business. Of course
remember that this form as well as anything that I write on the website is
covered by my disclaimer. Depending on the amount of credit that you
extend, it might be worthwile to pull a credit report on the business.
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3) Institute a formal credit policy. This include the way you expect to be
paid, any discounts for prompt payment and any interest and penalties that
you will charge if payment is late. Terms do not have to be the same for
all your customers. Your knowledge of the industry and the information
provided by the commercial credit application will determine the amount of
credit and the terms. It is not unusual to see some customers enjoying
terms of thirty days while others have more lenient terms of 60 or 90
days. Once you approve the customer for credit make sure that you include
the terms on the invoice so that they can be enforceable. By the way, it
is usually not a good idea to let your customer know that there are other
customers that have more lenient terms. As a small business owner you
might find yourself with some large customers that will set their own
terms. For example, someone that I know has a small trucking company and
his largest customer pays him anywhere from 90 days to 120 days after he
provides the service. However, he made a business decision to accept their
terms in order to grow his business and provide stable work to his
drivers.
There is also the flexible business loan for people who want to borrow
over £10000 at a variable rate. Flexible loans are also available for
people interested in loans over £25000 and have the option of fixed and
variable rates.
4) Be relentless in enforcing your collections. I am not saying that you
should be unprofessional. In fact, I recommend that you go to great
lengths to not poison the relationship with your account debtor. Examples
of good enforcing are:
a)Billing the same day that you provide your product/service are provided,
do not put off billing.
b)Setup your accounting software to prepare past due letters or reminders.
If your accounting software does not do this automatically run an aging of
accounts receivable report a couple of times a month and prepare the
reminders yourself.
c) Show up in person to collect. It is much more effective.
5) Deal with your chronic past due account debtors decisively. You might
need to refuse to do any further work until the account is brought up to
date, setup an installment plan if the customer can not pay all at once or
exercise your rights in court. Hopefully, none of this will be necessary,
but the sooner a past due account is addressed the more likely payment
will be made.
Benefits of Business Loan
These business loans may require some form of collateral and an
arrangement fee. The benefits of this type are:
* You decide whether the rate is fixed or variable
* You decide to pay interest monthly or quarterly
* Highly competitive rates
* Repayment can be over a period of 1 – 15 years
* You have the option of capital repayment holidays and deferment
* You can use the loan for whatever you like
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The content and materials provided in this
web site are for informational and educational purposes only and are not
intended to supplement or comprise any precise facts, although we have
researched sufficiently for the facts and information to be reasonably
accurate. All content and materials including research papers,
case studies and testimonials summarizing facts have been done by
individuals working for this website. We cannot be held responsible for
any inaccuracies, as we have described that information is for educational
purposes and therefore maybe a few weeks old.
Resources:
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