Give Credit Where It’s Due

by Angela R. Garber

Anytime a business offers goods or services before collecting full payment, it is taking a risk. In today’s marketplace, few businesses other than the local mom-and-pop can get away with a cash-only operation. Most companies, especially those in a service industry or whose clientele is made up primarily of other businesses, would be placing themselves at a serious competitive disadvantage to insist on payment up front, in full, and in cash.

Offering terms of credit to customers is not that complicated. Lawyers, accountants, publicists, and other professionals selling services do it all the time: The client makes a request, the business determines the cost, a contract is executed, and the client pays according to the terms of that contract. Shop owners, of both the brick-and-mortar and electronic varieties, usually extend credit, too, whether they accept credit cards, offer COD (cash on delivery), or “house accounts.”

Even if credit is already a part of operations, there’s a chance you could be doing more to ensure the credit decisions made are good ones. Internet-based tools and software applications can help in creating a “terms of credit” policy, check credit worthiness, and connect customers with third-party financing.


When selling big-ticket items such as houses, cars, artwork, or antiques, there’s just no way to offer financing without the help of a lending professional. By connecting clients with third-party lenders, you minimize the risk to your business and make things easier on customers. And by further making sure that the finance company with which you deal specializes in the type of product you sell, chances are much better for a successful transaction.

Roy Sayles, owner of Affordable VIP Classics, a San Diego, Calif.-based classic and vintage car dealership, found that linking his Web site to J.J. Best & Co., a finance company that specializes in the classic and vintage car market, was a boon for business.

In addition to selling cars in his showroom, Sayles has been selling cars around the country and internationally off his Web site,, for about four-and-a-half years. Since he first offered customers the ability to apply for instant, online financing, sales have increased by 50 percent.

Sayles is quick to point out that the 50 percent jump is attributable to many factors including marketing efforts. But he does think that a good chunk of that increase has come from “impulse buyers” who may not have closed the deal if they had to go out searching for their own financing.

“Probably 5 to 10 percent are due to that type of impulse buy,” he says. “In some cases people will get financed on a more expensive car than they were looking at originally. They may have been looking at a $20,000 car, but once they have gotten approval from J.J. Best, they may find they can afford a $30,000 car.”

Sayles gets 3,000 visitors a week in the showroom and 3,000 a day to the Web site. The six-person dealership sells approximately 45 cars a month to customers in all 50 states and from as far away as Germany, Switzerland, Bulgaria, Turkey, and Australia. He picked J.J. Best for two reasons (other than that they work on line): They know cars and they offer financing in all 50 states.

“Most financing companies only deal with two or three states, but J.J. Best is one that will handle customers anywhere. And they’re very knowledgeable about the type of automobiles that we sell.” he says. “There are companies out there that offer little fringe benefits, like percentages back on the sale, but we’re interested in service to our customer and getting the job done right and quickly.

“The company will give a yea or nay to a customer within 10 minutes so we can keep that customer happy.” And, Sayles says, it was as simple as placing a link from his Web site to theirs.

With an ever increasing variety and array of online financing options, it is quite possible for just about any dealer, of cars or otherwise, to find a suitable third-party match for his customers.


Another option to extend credit while keeping risks low is good old-fashioned COD. This means that a customer agrees to pay for the services or goods with cash, money order, or certified check when the product is finished or the service is complete. There’s always the risk that the customer will try to skip out on final payment, but at least you will have the leverage of holding on to the customer’s order. And, whenever possible, it helps to require a deposit up front. This ensures that the customer is making a serious commitment and minimizes loss should they back out on the deal.

Where things get tricky, and much more risky, is in offering terms of credit. A typical term may be “net 10” or “net 30” ­ meaning that payment in full is due in 10 or 30 days after the date of the invoice. This is not unlike the terms a credit card or utility company offers. The risk is that you are depending solely on the credit-worthiness of the customer. To minimize the risk, make the terms of credit clear and consider executing a sales contract. Perhaps the most important step a business can take to minimize its risk is to check its customers’ ­ businesses or individuals ­ credit.

Bank and supplier references can either be supplied in writing by the customer or can be obtained with a quick phone call. Now, thanks to the Internet, business and individual credit information is easier to obtain than ever. All of the major credit bureaus ­ Experian, TransUnion, and Equifax ­ have Web sites, and services such as Dun & Bradstreet and CreditFYI offer not only credit histories, but easy to read credit ratings on line. The cost of these reports starts at about $5 and goes up depending on the level of detail. The reports usually consist of the full credit history giving specific action items and dates going back as far as 10 years. They also compile the information into understandable graphs and charts that may explain the percentage of times the business pays late and compares it to all businesses (such as, Company X is a better credit risk than 90 percent of all businesses).

Once you’ve determined that a new customer is a “good risk,” it is a wise idea to execute a contract and require the customer’s signature acknowledging acceptance of the terms of credit. Accounting software comes with invoice templates that detail payment terms. Likewise, there are several Internet sites and software packages, including and Jian Software’s Agreement Builder, that give step-by-step guidelines for creating such legal agreements. It’s a good idea to have lawyers take a look, but using the templates will likely help cut down on legal fees as well, since you won’t have to create it from scratch.

Regardless of what credit option you extend to customers, remember first to reduce your risks. After all, the goal is to build a base of good customers, not to spend time chasing after late payments and delinquent debtors.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.
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