Credit Terms - Tips For Controlling Your Receivables

By Joshua Feinberg

Credit terms and policies for extending credit to customers requires a tight balancing act. You need to watch out for your money and protect your cash flow. You also want your services to be attractive to clients. By following a few simple rules about providing credit and setting credit terms, you will keep yourself in perfect balance.

Credit Terms Rule #1

With new clients, get paid as you do the work. The bill you're most likely to get stuck with, is the first bill a client receives. Quite simply, don't give them credit terms.

Credit Terms Rule #2

Get credit card authorizations whenever possible. Either get a credit card or do a check before you leave. You don't want to extend credit terms to new clients without performing due diligence unless it’s an extremely small amount or you like taking huge risks.

Credit Terms Rule #3

Don't give credit without a rigorous credit application and credit check. No exceptions.

Credit Terms Rule #4

Get something up front. Commit to getting half up front. Securing a deposit check makes all the difference in the world when determining the likelihood of receiving the second half. Once you make this credit term policy - enforce it.

Credit Terms Rule #5

Never extend credit on product sales. You're not going to make much money on product sales. This is an accommodation or incremental source of revenue at best. Get it prepaid or get a credit card authorization.

Credit terms are an important part of operating a business. You have to remember however, you are a computer consultant, not a bank. You are not in the business of lending money so don't make it a habit.

The Bottom Line on Credit Terms

Credit terms are part of business, but you have to be smart about them. Don't extend credit terms to new customers or on product sales. Do get authorizations and deposits before starting work. If you manage your credit terms properly you improve the likelihood of maintaining positive cash flow. This is what allows you to extend credit terms in the first place.

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