If your business sells to other businesses, you may want to allow these companies to purchase goods on credit. What should be included in a business credit agreement? What things should you check before allowing businesses to buy on credit?
Business to Business Credit
You may be fortunate enough in your business endeavors to have much repeat business from another business. Sometimes a great selling point on goods or services is the ability for a business to purchase those goods or services on credit. Should you extend credit to another business? If you do, how should you go about it and what should be included in the business credit agreement? Finally, how should you check to make sure the business credit agreement is reasonable? Read on to find out the answers to these questions.
Should You Extend Credit to Other Businesses?
In today's tough economic times, people often expect that there will be an option to float credit and pay off accounts on a regular basis rather than all at once - especially if they are a business regularly utilizing the services of another business. Many businesses accept credit cards and other forms of credit. However, you may remember your mother telling you, "Just because everyone else is doing it doesn't mean you should." Given that "everyone's doing it" isn't a good enough reason for you to extend credit to your business clients, what are good reasons?
1) You have enough of a cash-flow with your business to where you can afford to extend credit to business customers. For example, if you are dependent upon on-time payments and one late payment means that the rent doesn't get paid, do not extend credit at this time.
2) You regularly work with a business who pays on time. They have a large project with a large fee. Their accounting department is not comfortable with cutting a check that is for $22,000, so you extend credit and allow them to pay in increments.
3) The business has been around for a while. Nothing is worse than extending credit to a business that goes out of business. Make sure you'll be paid by doing your background research.
4) The business has a good credit score (more on this in a moment). You want to make sure that the business has a good history of paying their bills on time.
5) By extending credit to another business, it will increase your business. This relates to item number two. If your fees and projects are sufficiently high, extending credit can help offset this to clients who could not otherwise afford your services or goods.
Read on to the next page for more details on extending business credit as well as what should be included in a business credit agreement.