When you provide a customer with your service or product and hope that they will pay you back at the later, specified date, it’s a little bit unsettling. A hotly debated question is whether or not extending net terms is sound practice for small businesses. Is it worth the risk? Why SHOULD small businesses expose themselves if they don’t have to?
The truth is, there are immense benefits that come with opening your business up to extending payment terms. It’s simple: operating on net terms is an opportunity not to be missed by your small business, and here’s why.
1. Financial Health
If your company operates on net terms, it says to other businesses, financial institutions and even customers that your business is fiscally strong. Extending credit is something that cannot happen unless you, as a business, have a healthy cash flow. By making net terms available, you immediately boost your financial reputation.
2. Product Validation
Resistance towards credit operations can, at times, come from a business owner’s fear that their customers will receive a service or product, be dissatisfied (for obscure reasons), and refuse to pay. Truthfully, though, payment terms tell customers you trust your product and are well aware of its value. You don’t see the danger because you’re certain of customer satisfaction. Having enough trust in your product to sell on credit helps customers put trust in your brand.
3. Customer Appreciation
Every small business is looking for a way to say thank you to their customers. Extending net terms is a sure-fire way to do so. Giving customers a chance to be more flexible with their cash flow is an invaluable opportunity. It shows trust and they won’t forget it. It also develops sincere customer loyalty; they come to you not only for the credit extension, but out of appreciation for the confidence you’ve placed in them. It’s a little step that goes a LONG way.
4. Competitive Edge
Not all businesses operate on net terms. End of story. So those that do get an immediate leg up on the competition. Cash flow is king and payment terms give customers a chance to have better control over their own. Therefore, when choosing between two companies, one who offers credit and one who does not, customers find themselves led to the company that operates on net terms. Extending credit means gaining competitive advantage.
5. Money, Money, Money
Looking for a way to make more money? What business is not? Increasing sales is a goal of every ambitious business owner. Did you know that operating on net terms is the simplest (and most cost-effective) way to accomplish this? By extending your customers’ payment due date, you are enhancing their buying power. Not only will more customers want to buy since you offer such attractive terms, but the longer buying period means they can actually buy MORE. Simply put, increasing their buying power leads to increasing your sales.
If extending credit makes sense for your business model, there is absolutely no reason you shouldn’t be. Small businesses now have the power to effortlessly manage a credit department, which gives them the chance to enjoy the enormous benefits net terms can bring to a company. Don’t be left out!
