Managing: 4 Keys to Extending Credit

"Revise your credit policy now to avoid problems associated with extending credit later" says SCORE counselor Bob Paul.  (He was vice president of credit and collections at John Deere for a multi-billion portfolio of loans to businesses and individuals.)  Here are his 4 keys to extending credit.

1) Avoid extending credit if possible. Get paid on delivery, in advance, or at specified milestones during a project. Accept credit card payments where possible. Extend credit only if it is demanded in your industry. Providing credit to your customers eats up your cash and costs you money in terms of added expenses and a higher level of debt. Be sure you are appropriately compensated either through interest collected or through your pricing strategy.

2) Develop a credit policy which defines procedures to approve credit and authority levels within your organization. The rules may vary for granting larger credit amounts. The procedures may include requesting and reviewing the customer's prior years tax returns, historical balance sheets and income statements, credit references, and credit reporting agency data. Higher levels of credit require greater scrutiny. Know how to evaluate creditworthiness. Be aware of all credit extension laws that are applicable to you and your customers. Follow them carefully. Failure to do so may result in you losing your claim to the account (and you may also be liable for punitive damages).

3) Develop a collection strategy. This should detail precisely the action(s) you will take at 10, 30, 60, 90, and 120 days past due. The strategy should also delineate small versus large past due amounts. The strategy may begin with a friendly reminder or courtesy call and escalate up to and including credit restrictions, 3rd party collectors, repossessions, liens and court judgments. Follow your collection strategy precisely for all customers. Be aware of all debt collection laws that pertain to you and your customers. Follow them carefully. Failure to do so may result in you losing your claim to the account (and you may also be liable for punitive damages).

4) Be sure that detailed invoices are sent out promptly. The invoice should be accurate and have sufficient detail for the customer to understand what they are being charged for.   Include credit terms on the invoices.

If your business is having credit problems, get advice from a SCORE counselor like Bob Paul.Find a counselor near you.



Have an observation or question on credit?  Please comment.





Peg Corwin


I recently came across your

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Bob, these are great tips and

Bob, these are great tips and especially right now with the economy in a crisis. One thing I wanted to point out, is that when you do have a credit policy, make sure to enforce it!
I have worked as a collector for 21 years and so many business owners who would place accounts for collections, would have a credit policy but did not follow it or enforce it within their company.
This is very important.

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