Why Extend Terms to Your Customers

Extending credit to B2B customers is a double-edged sword. On the one hand, you attract more customers. On another, you enter “possible missed payments” territory, which can spell trouble for your cash flow in the long run. Running out of much-needed cash to fund your day-to-day operations isn’t a scenario to smile about.

But business, as they say, is about taking risks. Extending credit to customers is a risk far too many businesses are willing to take, regardless of their size and industry.

Here are the top six reasons why:

1. Attract a wider customer base

Businesses allow credit purchases to draw more customers to their products or services. It’s a no-brainer. People love to buy but hate parting with their money. If they can buy now and pay later, most will.

2. Avoid unnecessary fees

The average consumer who uses credit cards for purchases can avoid credit card fees if they don’t carry a balance. But merchants, unfortunately, aren’t afforded the same luxury.

Each transaction entails an extra 2% to 5% of the purchase amount, which is why “many businesses avoid accepting credit cards when selling B2B,” says BluePay in a blog post. It’s the same reason why “credit card use represents less than 10% of all B2B transactions.”

A PYMENTS.com article echoes the same sentiment. Credit card use is “an easy way to extend time to payment, and transaction processing cost to the purchaser is low. In addition, companies can often accrue rebates and rewards. But for B2B sellers, the cost of accepting credit cards far outweighs the benefits.”

So what can a B2B eCommerce business that’s had enough of these credit card fees do?

Allow credit. B2B customers prefer to buy with credit because it lets them make money off their purchases before paying. Depending on the net terms you’re willing to offer, say, 30 days, customers’ time to payment is extended, and you avoid the dreaded fees.

3. Nurture trust and good customer relations

It takes a certain level of trust to extend credit to a customer. Trust equals goodwill, and goodwill equals a happy camper. The next time the same customer makes a purchase, odds are they’ll buy from you because a relationship is already in place.

Repeat the process where it makes sense for your business, and before you know it, you’ve built a loyal following.

4. Increase sales

When customers aren’t required to pay on the spot, you encourage large purchases and add-on sales. Reasonable B2B payment terms also focus your customers’ attention on your products and services, instead of the price.

5. Boost your reputation

Savvy businesses don’t extend credit just like that. In fact, not every business can afford to extend terms to their customers. It’s a risky proposition, and the decision to allow them to purchase with credit often stems from careful planning and investigation.

This being the case, the fact that you allow credit boosts your reputation, with people perceiving your business to be financially stable.

People will start talking about you. Especially if your products and services are top-notch, word of mouth is powerful marketing.

6. Gain competitive advantage

Even in industries where extending credit is considered standard practice, such as in construction, organizations with “absolutely no credit” policies exist. If they’re your competitors, you’re in luck.

Between a merchant who maintains a cash-only policy and another who leverages credit extension as a value proposition, customers will do business with companies that offer flexible and convenient payment terms.

FINAL WORD

It’s a dog-eat-dog world out there, and competition in business can only grow stiffer. Allow credit to generate more revenues, but take heed: Don’t take it lightly. While it can push your business to new heights, without due diligence, extending credit to every customer that comes your way can also run you out of business.

Posted in Finance, Cash Flow, Credit, Loyalty, Management