Accounting - Credit and Collections
The Lowdown on Credit and Collections

The Lowdown on Credit and Collections

You will generally be able to get away with requiring immediate payment if you provide products or services to consumers. Accepting credit cards will help, and many of your customers will perceive this as a convenience. Credit card fees may run as high as 5 percent, but accepting them will speed your cash flow and save the time and effort involved in billing and collection procedures. It also cuts down on bad debt.

In almost all types of business-to-business transactions you will be expected to extend credit in order to close the sale. In some industries it is standard to require a percentage of the sale up front—especially if the client is new or the business is a start-up.

Budding entrepreneurs have a remarkable tendency to overlook the importance of carefully extending credit and aggressively collecting on overdue accounts receivable. Collections activities begin in earnest only when cash flow is negative. Don’t overlook this important aspect of running a business. Get good people and sound policies in place as soon as possible!