Extending Credit to Boost Your Sales!

Credit is an absolutely necessary tool for small, as well as large businesses. Companies need credit to expand and increase profits. Credit can also allow extra funds for marketing, and targeted advertising increases your exposure in the market place.

The basic premise for any business is to supply a product or service to the consumer at a competitive price. Companies many times are short of operating capital and may need equipment or technology to better service their customers. They need credit to move forward. Being denied access to credit would force many companies out of business. Credit is a business tool that is used to increase production, while the extension of credit to your customers is also a tool to boost sales.

Increase Your Profits by Extending Credit

In today’s economy, people still need to shop—but these consumers have cash flow issues. The problem is many buyers do not have the funds to make purchases when they want or need them. Customers have budgets and cash flow problems, the same as companies.

Many consumers want to expand their quality of living, and they require an extension of credit in some cases to achieve that goal. Extending credit to current clients will provide those opportunities, and offering it as an incentive to new traffic will also increase the customer base. Companies can sell more of a product or service by offering credit. According to many economic experts, extending credit to customers can increase sales by as much as 50 percent.

Credit Cards vs. Invoicing

There are several ways to extend credit. Invoicing is one way and issuing credit cards with your business name is another. Traditional invoicing allows individuals to purchase today, with the promise to pay in full within 30, 60 or even 90 days. There is normally no fee or interest, unless the account is not paid within the agreed timeframe. The company wins by increasing its sales, and the customer wins by getting what they want right now.

Issuing credit cards extends the in-store financing setup for a longer duration, and therefore demands interest be paid. Businesses will increase sales by extending credit, but servicing the accounts will probably require additional employees. Charging interest rate or a flat fee will defer the costs of servicing the credit accounts.

Credit Extension and Upgraded Product Quality

Companies offer products and services priced to sell. A market study of the consumer base has indicated that the company can be competitive at a certain retail pricing range. Customers will shop at the business and purchases are based on what they can afford.

The higher-end products normally do not sell because the business cannot be competitive with pricing. Extending credit on better quality merchandise will sell more of it. Higher quality merchandise tells the consumer that the business is growing and possibly expanding. Credit allows consumers to afford the better product.

Small businesses that extend credit for the first time can expect some clients not to pay on time, and they will have some loss. The fees charged to extend credit can offset some of that loss. The increase in sales and profit margins will far outweigh any loss to due to delinquent payments. Keep in mind that your accounts receivable are assets and collateral, and typically lenders will look favorably upon them.

Gina Hamilton is a financial consultant and also writes for credit card sites. She suggests you check out Kanetix credit card comparison charts before choosing your next card account.