Extending credit to your customers: a tale of two businesses

One offers cash, cards, or checks only. They pass service fees from credit and debit cards on to their customers. It’s the only way they can be sure they get the money that’s owed to them for the products and services provided.

The other is a bit more trusting. They extend credit to their customers. They offer “buy now, pay later” options. At first, they realize it’s a bit of a risk trusting their customers to such an extent. They know they’ll have to essentially underwrite the purchase and trust that they’ll get the money back over time. As time goes on, the risk begins to pay off. This is because their customers can afford to buy more things when they have the option of paying for them over time.

No, not everyone pays on time. Some invoices go unpaid altogether. But ultimately, the “gamble” pays off. At least, it has for companies like Amazon, Best Buy, Walmart, and others. For the remainder of this article, we’ll examine why extending credit to customers is so very important.

Extending credit builds customer loyalty

Extending credit to your customers is a way to “buy” their loyalty, essentially. That’s because when you offer them the option to pay over time, they’re more likely to come back to you for future purchases. They may even recommend your business to others because you were willing to trust them enough to extend credit.

It’s not just about buying loyalty, though. Offering payment options also allows customers who couldn’t otherwise afford your products or services to act now and start enjoying the benefits.

Encourages repeat business

Think about it. A homeowner, over the course of a 15- or 30-year mortgage will need at least one air conditioning system, plumbing overhaul, refrigerator, oven, stove, mattress, bedframe, furniture, etc. Knowing they can get these items from you now without it damaging their savings account or monthly budget encourages their return.

Gives you leverage in the event of default

You’re taking less of a risk than you think. Should the customer default, the fact that you extended the credit option to them in the first place gives you a lot more leverage when it’s time to collect.

You can extend repayment options if you so choose, or work out some form of easier payment plan that shows flexibility and understanding. This increases the odds they’ll make good on their promise to pay. And, God forbid you to have to take them to court, it will strengthen your case.

Improves cash flow

When you extend credit to your customers, you are essentially giving them a loan. This loan is repaid over time, with interest. The benefit of extending credit is that it improves your business’s cash flow.

Instead of waiting for customers to pay in full for your goods or services, you can immediately receive payment. This allows you to reinvest the money back into your business and improve your bottom line.

But what if they cannot or will not pay?

Having delinquent debtors can be a major burden on your business finances. Not only do you have to worry about the money that they owe you, but you also have to deal with the potential legal fees and other expenses associated with collections.

Inevitably, some debtors may refuse to repay you and start avoiding you altogether. What happens if they cannot or will not pay? That’s where a debt recovery service comes in.

A debt recovery service can help to defray the impact of delinquent debtors by taking on the responsibility of collections for you. They will work to collect the money that is owed to you, as well as any interest and late fees that may be incurred.

In addition, they will also take care of any legal proceedings that may be necessary in order to collect the debt. This can free up your time and resources so that you can focus on running your business.

Are you considering offering credit to your customers but are still a little nervous about doing it? Perhaps you started to do so but didn’t have a plan for collections, and now the delinquent accounts are getting away from you. That’s where Southwest Recovery Services can help. Our business is to keep your business going strong by getting you paid more quickly without the strain on your daily operations. Contact us today to learn more!

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