Credit & Collections For Small Business What is Credit? It is “credit” that makes the world go round, not money! Much of what is bought and sold is not paid for in advance, but after the delivery of goods or services.
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For Small Business
BUS 204 Credit & Collections Spring 2006 copyright, SJH
CREDIT: a system of doing business by trusting that a buyer will pay at a later date.
Consumer credit is extended from retail stores to the customer.
Trade Credit is extended from one business to another (wholesaler to retailer).
Are you dependent on repeat customers?
Do you know and trust your customers?
Do your customers have big buying power?
We proudly accept Visa, MasterCard, Discover Card, American Express…
1) with a Visa the seller gets the “cash” quickly from VISA (even if the buyer has not paid for all of it)
2) Revolving Charge Accounts are “in-house”
Layaway Garment 100
Total Sales $ 100
Cost of Sales -60
Gross Profit $ 40
Sales $ 20
Layaway Garment 100
Total Sales $ 120
Cost of Sales -60
Gross Profit $ 60
* Layaway with 1 paymentStandard Sale VS. Layaway Plan
In your Small Business
2. You, the Credit Card Merchant, obtain a Merchant Account from a Sponsoring Bank
3. The Sponsoring Bank is really offering you “an unsecured line of credit”, and yes, you must apply and show solid creditworthiness-
4. You take the customer’s card, and process the sale (possibly getting an authorization code from your Sponsoring Bank.
5. Your Sponsoring Bank typically uses a Processor to acquire the credit card transactions from you and processes them through the Issuing Bank and your Sponsoring Bank.
6. You get paid when the customer charges & when you submit a deposit transaction credit card receipt… this process is known as “settling”.
7. It may take a few days for the transaction to process, and for you to obtain the money in your account (minus the processing fee).
1) The Cardholder doesn’t believe you delivered the goods.
2) The Cardholder never ordered the goods
3) The Cardholder returns the goods.
It is the policy of Sally’s Boutique to extend credit to customers
purchasing more than $100 worth of merchandise in a single
transaction, not to exceed $500.
Such credit will be extended provided customer agrees to a credit check and has a credit score of 680 or above.
Payments may be agreed to be installments, but the
total term of the repayment shall not extend beyond one year.
Customer must complete a loan application form, a request for credit information form, and must sign a loan agreement. Interest charged shall not exceed 12% per year.
All credit extended to the customers and all transactions to be paid on credit are subject to the approval of the owner of Sally’s Boutique.
No item purchased on credit may be returned.
All items purchased on credit shall require at least 10% down payment.
The owner reserves the right to not extend credit to any customer and reserves the right to make exceptions to this policy.
Name and street address (not PO)
Does the applicant own or rent?
Does the applicant have any other real estate?
Name, address and phone of employer
Identify all checking & saving accounts
Is the applicant a business owner? (if so, name and address of business)
Is the applicant married? Is spouse co-signing?
Customer “Personal Financial Statement” showing all obligations and all revenue
List of references
Questions on litigation or convictions
Finally, the application must be signed & dated.
Yes, we are extending credit
to get customers, but it “Could be
Risky” and we could lose money!
The Credit Policy puts the risk factor
up-front and includes the customer
in the process.
As a business owner, you need
to consider the worst case scenario.
Gives customer 30 days to pay the invoice and offers a 2% discount if paid in 10 days
E.O.M. means end of month (that means the 30 days does not start until the end of the month)