There are a few steps you can take today that can reduce your credit risk and make your credit program a growth engine. One of these is to develop clear qualification criteria. When you are evaluating a customer’s credit worthiness, consider these basic elements:
Credit minimums: What is the minimum requirement for you to approve credit for a new customer? Best practices include:
• 3+ years in business
• No outstanding delinquencies of 90+ days
• FICO score >685
Contractors who don’t meet your credit minimums should be designated as cash or credit card customers until they’re able to meet your requirements.
References: Ask for, and check, bank and trade references as part of every credit application regardless of the size of the company or the requested limit.
Financials: For new customers requesting large credit lines, ask for the company’s financials, a copy of their bank statement or a letter of credit from their bank.
Contracts: When a customer asks for a bigger line to cover a job, ask for a copy of the payment bond or homeowner contract to get a better idea of how much credit is needed and what the contractor’s payment schedule may be.
Deposits: Consider asking for a deposit if you have to special order materials or the order amount exceeds the customer’s credit limit.
To learn four other ways to reduce risk and grow your business, read the full article here.
About the AuthorMore Content by Scott Simpson