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“Cater to your customers’ lifestyles. It will create instant rapport and a lasting sense of “I belong here.” – Marilyn Suttle

Something that every business owner and company would know is that the realm of customer service is a rather large and complex one. Anything that concerns the customer directly (and indirectly) is part of customer service. Hence, the subject on offering credit to customers falls within this realm too – it is an attempt of the company to make things simpler for their customers. However, any business needs a steady flow of ‘liquid’ cash to run its daily operations, while also needing customers who make big buys and repeatedly so. Too much credit could leave your company struggling with funds and face cash flow problems, while not offering any credit could bring down sales with customers walking away to companies that would offer them credit. As mentioned earlier, the desire to provide top class service should not put a spoke in the wheel of your own business goals and therefore a company must strike a fine balance between the credit it offers customers and the cash flow it requires to run its business smoothly.

Offering credit to customers can however, prove risky since effectively a company would be giving its products and or service without charge (free) in the present, relying only on the word of the customer to pay you. Before offering credit to customers, especially for long periods, ensure that your company has a robust and foolproof credit policy in place – vetted by a legal expert, such that there are legal loopholes and is binding on both parties. It is commonplace for companies to make adequate reference and background checks before accepting any customers – especially on those customers that expect long credit periods. The customers should be worth taking any kind of risk and before offering credit to customers, a company should weigh the pros and cons of doing so. There are several advantages and disadvantages of offering credit to customers. Starting with the advantages, the most obvious one is that by offering credit, a company would be able to attract more customers. This is especially favourable for those customers with relatively smaller businesses, or customers who buy more during the holiday season, and even some long-standing customers.

With strong line of credit, your company would not only attract new customers, but the loyal ones could get in more customers for your business. This is the power of the word of mouth – it shows prospective customers and the target audience, that the existing customers trust your company and are happy with its service. Attracting more customers through the word of current customers is possibly the best form of promotion for your company – the new customers ‘come in’ without the usual doubts and apprehensions. Over time, your long standing customers and the new ones, appreciate your company’s efforts of making things simpler for them, even if it is by offering them credit, becoming more loyal brand ambassadors for your company. In addition, to loyalty, offering credit to customers, enables them to make huge purchases and your company’s expensive offerings. The ability to pay over a period of time, gives them more purchasing ‘power’, which they would use for your company rather than spending their money elsewhere. As we know, many buys are usually for emotional reasons and when a company offers credit, customers are able to indulge their senses and satisfy their emotions, without the burden of paying immediately – making them spend more. While this is a great way to build revenue, a company must remain cautious too and offer credit only to customers with a reliable payment record and those for whom they have good references.

Offering credit to customers enhances your company’s reputation and standing in the market too. It tells the ‘market’ and the customers that your company has enough cash flow to run its operations, has a customer base that is able to trust it, and that your company is an established one because it has been able to extend this facility. New businesses and start-ups usually do not have the financial backing or stability that is required for offering credit to customers. Your competitors would respect and ‘fear’ your company – money is power after all, especially in the highly competitive scenario of today. By offering credit to customers, what your company is telling them is that they are respected and trusted. Customers that feel valued and welcomed are more likely to return and uphold the relationship your company initiated with them. In the age of quick returns and not much loyalty, such relationships with customers can prove to be the difference between success and failure, as customers see the line of credit as a convenience and increases their buying ability.

With the advantages however, there are some disadvantages too of offering credit to customers. The possibilities of disputes and conflicts increase – a customer could refute and challenge certain charges, increasing the amount of time, money and effort a company would need to invest in sorting these differences. Especially in the case of credit card payments – processing the charges, refunding amounts, chargeback fee, and other such charges – simply add to the administrative nightmare for companies. In addition, credit card fraud is a very real threat and possibility today. The credit card details of a customer, if not properly handled by a company, could easily be misused, the cost of which would be borne by the company. These are additional and unnecessary costs that the company incurs when they do offer credit facilities to their customers.

As mentioned, the more number of customers that a company offers credit too, makes bookkeeping and record accounting extremely tough and complicated. A company would need to have a dedicated team for the recordkeeping activity and would need to be extremely cautious with how the information is handled at the backend. This is a high risk and highly vulnerable part of any business, and only those companies that have proper infrastructure and capabilities, should undertake credit offers to customers. In addition, to maintaining the ‘books’, a company would also need to have a team of collection agents to recover money from customers that default on their payments. The reason for offering credit to customers, is to increase sales and revenue, however, when the payments are stuck in the ‘collection loop’, companies are usually unable to collect the full amount – what with settlements and inability on the part of customers to pay. Collection simply gnaws away at the targeted revenues and could become a serious matter of concern for any company if the number of such ‘defaulting’ customers is large.

As mentioned, there are pros and cons of offering credit to customers and a company must decide to offer it only after careful consideration of all the factors. While the benefits of credit to customers may outweigh the disadvantages, it still is necessary for companies to put in place strategies that would mitigate the risks and enhance the benefits for them and their customers. A company needs more customers and wants them to spend the maximum on their business and hence by making some smarter and intelligent choices, it can achieve this goal. Developing a robust credit policy and putting it in writing is an absolute must. This policy must be easily accessible to customers via the company website, social media sites, and as a print copy. Every customer must be required to fill in a proper credit form, read the credit policy, and sign it as acceptance of the terms and conditions. By keeping the policies transparent and accessible, a company can easily attract more customers, gain more revenues, and avoid most of the disadvantages connected with offering credit to customers.

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