If your customers receive your products or services before you are paid in full, you are issuing credit. While this can be a boost for sales, it can be a bust for profits if there are collection expenses and losses. Some of the steps you can take to address issuing credit include:

  • Use a credit application. Know to whom you are providing credit, the limits allowed, the terms of repayment, interest charges, and collection costs.
  • Conduct credit checks. Proper use of credit reporting agencies and asking for and contacting references can avoid collection problems.
  • Personal guarantees. Especially when issuing credit to a customer that is an Inc., LLC, or other entity, have an owner, other individual or acceptable third-party sign as the guarantor.
  • Clear payment terms. Proposals, contracts, credit applications, invoices, and statements should have consistent terms for credit, including payment dates, late payment penalties, interest charges, and recovery of collection costs.
  • Early payment terms. Early payment incentives or discounts should be clear, forfeited if not followed, default to immediate full payment, and consistent with all credit terms.
  • Diversify. Avoid accumulating too much credit to specific customers or industries.
  • Monitor. Implement periodic reviews of credit status, total receivables on credit, and credit concentration and make adjustments.
  • Credit card payments. Arranging a secure website and processor for customers to pay by using their credit card reduces your need to give credit.
  • Factoring/Financing. Use factors to purchase your receivables or create relationships with lenders who will offer your customers credit for their purchases from your business.
  • Establish a credit monitoring and collection process. Be prepared to address customer defaults and track your exposure to potential losses from your providing credit.

The attorneys at Brooks, Tarulis & Tibble can advise you on best practices for issuing credit, proper documentation, and collection problems. Please contact us if you have any questions or concerns.

This Brief is designed to provide our friends and clients with information regarding the various subject matters covered, it is not designed to take place of legal, accounting, or other professional advice.  If expert assistance is required, the services of a competent professional should be sought. This memorandum may constitute advertising under the rules regulating Illinois attorneys.