When you extend credit, you are lending customers your own money. If you haven't established a good credit policy for your business, you could end up losing money. If you want to grant credit as part of your business plan, remember:

1. Most of the time you don't really need to extend credit to consumers unless you provide a service that's billed monthly or offer contracts for work to be completed in stages.
2. The structure of your credit policy depends on your industry and competition.
3. It is an effective method of increasing your client base.

Action Steps
The best contacts and resources to help you get it done

Open a merchant account

Visit your bank or credit union or contact a merchant account broker to open a credit card merchant account.

I recommend: You can open an online merchant account with Card Service International or United Payment Services right from your computer.

Establish efficient procedures

A well-organized, accurate, easy-to-use system of accounts will make life much easier for you, your employees and your customers.

I recommend: Quicken offers several financial and management software packages for small businesses. Volusion offers complete e-commerce solutions, including software and shopping cart packages.

Spell out the terms

Make sure both sides understand the terms of the credit agreement and provide the customer a copy in writing.

I recommend: LawDepot.com is a provider of easy-to-use online legal documents. Also at NEBS, you can purchase basic credit agreements compatible with most businesses.

Collect debts quickly

Once a bill is past due by 30 or 60 days, it is rarely collectible.

I recommend: Your Collection Solution and Debt Collectors Online will handle the collections process and lets employers set up proceedings online.

Watch the Web

Special precautions are necessary if you conduct transactions online.

I recommend: You can provide your customers with a secure, e-commerce-enabled Web site through VeriSign, the number one online payment processing service.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If you don't want to use a formal application, you can still gather important information with an intake sheet. The name of their nearest living relative is helpful if the customer skips out.
• •  Doing a credit check on a customer before you extend credit can save you money and buy you peace of mind. However, if you deny credit to someone based on a credit report, you are required to disclose this to the person.
• •  Check the nearest law library to find out what the legal limits are on interest or finance charges.
• •  Send out bills periodically and stay in touch with customers who don't pay or pay slowly.