Creditprousa's Blog

October 26, 2011

How Long Is Long Enough?

From time to time, every merchant that sells on a credit basis must make a determination whether to continue selling to a particular customer that does not pay within established credit terms.  In a good economy, it is much easier to deny the continued extension of credit to an existing customer that consistently pays late and replace them with a company or firm or individual will pay in a more timely fashion. In a troubled economy however, almost every business struggles to get new business to keep, maintain or increase their market share, much less be selective in its selling process.

Consequently, as a business owner, company president or sales director, you make must the choice to continue extend credit to a customer, or deny them the further extension of credit.  Several factors should be included in your decision making process, but one of the most important if not THE most important factor to consider is whether you are making enough profit on your particular customer to absorb the costs for the extension of credit?  For example, a customer that owes $10,000 for a product or service translates into a cost factor to you of $600.00 per year, $50.00 per month, or approximately $1.65 per day at a nominal borrowing rate 6% per year until the money is paid:

($10,000.00 x 0.06) = $600.00 ÷ 12 = $50.00 per month

 

OR

($10,000.00 x 0.06) ÷ $600.00 ÷ 365 = $1.65 per day

Not a big deal right?  Wrong!  Let’s look at that same example using 50 or 100  accounts (a pretty good customer base for a small to medium sized business).  Using that same outstanding balance of $10,000.00 for 50 or 100 accounts the expense to extend credit increases to an annual rate of $30,000.00 or $60,000.00 respectively!

To increase cash-flow, minimize your expense and collect your receivables in a more timely manner, you know you need the services of an experienced credit professional. CreditPro Financial Services, LLC, has competent credit and collections professionals available to provide its vast array of services to you on an as-needed basis for less  than it would be for you to employ a part-time clerk.

Please call 216-402-9988 or

visit us on our website, www.creditprousa.com

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