Should You Give Customers Credit Terms? Read This First
Credit terms can help customers buy, but they also turn your business into a lender. Before offering 30 or 60 days, think about what happens if the customer pays on day 90.
Credit terms can help customers buy, but they also turn your business into a lender. Before offering 30 or 60 days, think about what happens if the customer pays on day 90.
Know why you are giving credit
Do not offer terms only because the customer asked.
Consider
- Customer history
- Order size
- Industry practice
- Your own cash position
Set a credit limit
Do not let unpaid invoices grow forever.
Define
- Maximum outstanding amount
- Payment period
- When new orders stop
Keep paperwork
Credit without records becomes an argument later.
Keep
- Signed quotation
- Purchase order
- Delivery proof
- Invoices
- Statements
My view
Credit can help sales, but cash flow keeps the company alive. Give terms carefully, review them regularly and tighten them when payment behaviour changes.
Need a second opinion?
If this is something you are dealing with in your business, you can always message me. If I have an idea that may help, I’ll tell you what I think.
Message LucianWhat I can help with
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Written by
Lucian Yong
Business owner and freelance web designer in Puchong. I write simple, practical things for Malaysian business owners.
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