How to Establish Payment Terms for Credit Accounts
When you decide to allow clients to utilize credit accounts for their purchases, you must clearly define the payment terms to avoid ending up swamped in bad debt. The payment terms must cover every aspect of the payment process in great detail to eliminate all wiggle room. Otherwise, your company’s finances could become tied up in open debt, leaving you without liquid funds needed to operate your business. Here are the areas to pay close attention while establishing your payment terms for credit accounts.
When you set the repayment period, you must strike a balance between the convenience of your clients and the needs of your company. You can choose anywhere between 30 and 120 days, depending on your company’s existing capital and total number of credit lines. Make sure to account for every one of your credit lines and their limit totals in case everyone maximizes their account at the same time. You want to make sure the funds will flow in and become liquid for use in the daily operation of your company to keep your business thriving.
When you open up credit accounts for your clients in Missouri, you must set their limits at a level that you can comfortably extend their way. Do not overextend your company’s finances or you could end up without the funds you need for business operations and growth opportunities while waiting for payback. In addition, the limit should be based on each clients’ credit worthiness, income and history with your company to keep risk to a minimum.
If your clients do not fulfill the terms of your credit agreement, you may need to issue a late invoice with punitive fees attached. The fees not only discourage clients from missing payments, but also cover the increased costs of chasing down the debt payments. You can set the late fees as a static number or a percentage based on the extended credit balance.
You can receive the help you need in establishing mutually beneficial payment terms for credit accounts by working closely with your accounting professional at accountRely in St. Louis, MO.