The decision to extend payment terms to a new customer is based around the 4 c’s of credit granting:
- Cash Flow
The weight to which creditors apply each of these principles depends upon the risk tolerance of the company extending the terms.
Small firms start by heavily relying upon their knowledge of their customer’s character because they do not usually have access to credit bureaus. As a company grows and the owner begins to lose personal touch with each new customer, indicators such as creditworthiness become much more essential.
Tools like Credit Reports and Credit Scoring must be used to get a better feel for the customer’s ability to pay.
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