Author Michelle Dunn, in her new book “Become the Squeaky Wheel,” explains how you can avoid scaring customers away and keep them coming back. First, find out what your competition is doing, do they have a credit policy? If they do, what is included? What does their credit application look like? How many forms do new customers have to fill out? Do they have good paying customers? Look online, a lot of business website will have their credit applications available online. You can create your own credit application or use one of the samples found in “Become the Squeaky Wheel”. Look at credit applications other business owners are using, are they more than one page? Try to keep your application one page; a half page is even better. The easier you make it for your potential customer, the better your chances that they will fill out the paperwork right there and hand it over. How many times have you taken paperwork from somewhere and then never returned it? Doing this will help you to obtain more credit approved customers.
“I am amazed at how much “stuff” people will jam onto their credit applications and new account forms. This alone can scare a potential customer away, especially if they can go down the road and fill out one easy form and have their product or service.” Explains Dunn. There are a few basic questions you want to ask, and you need a signature if you will be pulling a credit report. There are also some things you cannot ask such as marital status, unless the account will be a joint account. Also applicants do not have to tell you if they receive income from welfare, child support, or alimony. You cannot discriminate against applicants on the basis of sex, marital status, race, color, religion, national origin and/or age, I suggest having your forms printed with a carbon copy that you can rip off and give the customer when they leave. If you have printed your payment terms and conditions on the bottom of your credit applications, this helps you later if the account is ever past due. The customer has a signed copy of the terms and conditions and so do you, this will stand up in court.
The main reason you want to use a credit application as part of your policy is to gather the credit information that you can check to decide if you want to extend credit. You will also use the credit application to help you collect money if the account ever becomes past due. On your credit application you will want to have a statement such as:
“The undersigned herby agrees that should a credit account be opened, and in the event of default in the payment of any amount due, and if such account is submitted to a collection authority, to pay an additional charge equal to the cost of collection including court costs.”
“The undersigned individual who is either a principal of the credit applicant of a sole proprietorship of the credit applicant, recognizing that his or her individual credit history may be a factor in the evaluation of the credit history of the applicant, hereby consents to and authorizes the use of a consumer credit report on the undersigned by the above named business credit grantor, from time to time as may be needed, in the credit evaluation process.”
OR
“My signature indicates that I understand and agree to comply fully with the terms and conditions enumerated in this credit application.” (You would want to use this if you have included your credit terms on the application).
“My signature certifies that everything I have states in the application is correct to the best of my knowledge.”
Consumers get distracted by long forms, especially ones that ask for to much information or are full of legal jargon or long technical terms. Keep your form, short and to the point. Keep the language easy to understand and in laymen terms and watch your customer base grow with good paying customers. Use your credit policy to help your business make more money and grow. The more credit approved happy customers you have, the more they tell others about your business.
Things to look for when checking Credit:
- Have they paid their bills on time?
- What is their outstanding debt?
- How long is their credit history?
- Have they applied for new credit recently and often?
- What types of “credit” accounts do they currently have and how many?
- How long have they been at their residence?
- How long have they been at their job?
- Do they have a good banking history?
Extending credit works in your favor in many ways, and also shows a customer who has been credit approved that you have faith in them and appreciate their business. It also increases customer loyalty. Taking a financial risk for your customers demonstrates that you trust them and are willing to accommodate them.
A credit policy also indicates your business is financially stable. A business in danger of going under does not give its customers the option of paying at a later date. A Struggling business demands payments immediately.
Credit policies increase sales for another reason, some customers are unable to pay for a product or service in its entirety. If a customer has the option to pay for items in monthly installments, they will be more inclined to make purchases which do not fall within their current budgets. Extending credit also has downfalls such as your business could lose interest that you could have earned, even if you put it into a low interest savings account. You can’t take advantage of purchase discounts from your vendors if the funds are not immediately available or they are paying on terms.
You may lack the capital to produce the next job, and may be forced to declines profitable deals from good payers.
Some reasons for extending credit are to meet or beat the competition. If your competitors are extending credit you may want to offer the same. It may be more convenient for your customers to be billed for your product or service. Extending credit may also increase sales; you can use extending credit as a way to establish new accounts.
