Debtors
Credit policy is part of your goals in your marketing strategy, and if your revenue projection is aggressive, it could necessitate a lightheaded system.
Whatever marketing strategy and projections you initiate, your policy must match as a minimum the standard in your marketplace.
Two types of credits dominate small businesses’ credit policy:
- Open credit! It is a no deposit credit and imposes no interest or account charge. It offers these two modes of payment: Either “Net 30 days” or “Running month + 30 days Net”.
- Revolving Credit! It on a limit on, how much a customer can borrow. The customer pays interest only on the principal borrowed, and when a payment happens, the credit available increases.
The size of the credit given to a customer is significant.
Example:
Cash surplus accumulated $2,000 through the past month(s)
General expenses $23,000 a month
Budgeted revenue each month $100,000; gross profit 33.3% = $25.000
Default payment $10,000
It will take five months to recover from presenting circumstances in this example.
Small business usually is not strong enough to give a lot of credit because cash-flow can't handle it in time for survival for a crash if the amount lost is too significant.