If your products or services are out of customers' price ranges, you can say the customers are out of luck. You can lower your prices. Or, if you want, you can offer credit.
People may be extremely impressed if you're willing to cut them a little slack. It plays into the customer service aspects of a business, and can help ensure that you bring in some money as opposed to none.
Offering credit is not something to do without a second thought, however. It's a little bit worrisome when someone doesn't have cash for a purchase, and even more troubling when they for some reason can't use credit cards to cover the situation
Also, Melanie Lindner notes, "'Just-in-time' operators may not have the flexibility to withstand cash shortfalls," and she suggests, "If you do offer a payment plan, charge an acceptable finance fee--perhaps 1.5% a month, or 9% a year--and establish a reference checking policy."
Still, if you're looking for ways to generate money and loyalty, offering credit is at least another option to consider.
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Comments
CREDIT & CASH FLOW
Doug,
As a B2B seller (as well as an online merchant) it has been traditional to offer credit accounts to customers (usually on 14 or 30 day terms) and one of the hidden costs of doing business is the time spent on administration - credit checks, sending out invoices, sending reminder notices, chasing up payments, reconciling invoices and worse of all referring unpaid accounts to debt collection agencies.
In the past this was a necessary evil as the customer always wants the goods yesterday and it might take weeks for a cheque to be signed, sent, delivered and then finally cleared and deposited into our account. However with the increased use of internet banking and the prevalence of corporate credit cards this is now much less of an issue. Also online credit card processing facilities has also decreased the necessity for credit accounts as many people feel more comfortable entering CC details into a secure transaction portal than to some random sales person on the phone.
Our current policy in regards to corporate accounts is as follows:
First Transaction: Strictly payment before delivery.
Second Transaction: Strictly 7 day terms
Third Transaction: 14 day terms
The theory is that if the company making the purchase can't rustle up enough dough for a small transaction that they are liable to be a credit risk in future.
Although we offer accounts on 30 day terms this is strictly on request only and we only provide this service to regular customers with a good payment history. We have been burnt in the past by large organisations making large purchases on account and then not being paid for up to 100 days which as a small business forced us into overdraft and the interest we had to pay ate almost all the profit from the sale. We also charge late payment and/or account keeping fees.
Thanks for another great article full of useful ideas and insight.
Cheers
Alex Brooks - Logical IT Pty Ltd (Australia)
Nice system
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