Not all small businesses grant credit. Instead, they make all their sales on a cash basis. In many cases, this costs them sales and customers because, like it or not, we live in a credit-driven society. If a supplier needs to place a larger order from a company, that supplier may not have the funds to pay for it all in advance. That order will go to another company unless your small business extends credit. Small businesses face a trade-off; they have to balance the costs of granting credit against the benefits of increased sales. Most small businesses have two types of customers. They have B2B customers or trade credit customers. Trade credit is simply extending credit to other firms. Small businesses also have B2C customers or consumer credit customers, which is the public.
What Makes up the Credit Policy for a Company
If a company does a cost/benefit analysis and makes the very important decision to extend credit to its customers, then it has to establish procedures for credit and collecting accounts. There are usually three parts to a good credit policy:
