An open account credit policy allows your customers to charge their purchases from your company. If you decide to offer this policy, you must identify reliable customers and amounts and terms of credit. Some business owners who require payment 30 days from the time of purchase are able to eliminate service or interest charges. If you do charge interest for late or delinquent accounts, you must check with the state you are operating in to make sure you comply with consumer finance laws and regulations. The best way to avoid bad or uncollectable accounts is to know your customers and then use your own good judgment on how much credit to allow them.
If you are going to offer open account credit to customers, become affiliated with a credit reporting agency such as TRW. Ask each customer who is interested in buying on credit to complete an application. You can even create your own simple credit application by asking customers to indicate their place of employment, amount of income, and at least three credit references. With this basic information you can either check the information yourself or if you’re a member, have your credit bureau obtain the information for you.
Another way to offer customers credit is by accepting major credit cards, such as Visa, MasterCard, Discover, and American Express. To qualify as a merchant for these cards, contact your banker, who will send a representative to meet with you. (To become a merchant you must have a legitimate commercial location. Banks do not allow merchants to conduct credit card sales from private residences.) If you become a merchant for major credit cards, you will have access to electronic equipment for verifying credit cards and transferring funds. In return, the credit card company will assess a percentage of your monthly credit card sales.
It is advisable either to establish an open account credit policy or to accept major bank credit cards. Although more and more people today are paying cash for their purchases, it is still easier for a customer to say “charge it” than to count out cash. Accepting credit cards or having an open account credit policy does make it easier for customers to buy from you. And when you make it easy for customers to buy from you, you encourage repeat business.
