How to give credit to customers

Giving credit to customers (selling on credit) is a way of increasing sales or maintaining business relationships with a customer; however, it can also mean liquidity problems or the possibility that the customer to whom the credit was granted will not be able to pay it.

Therefore, before making the decision to give credit to clients, it is necessary to establish a clear credit and collection policy, evaluate well the client requesting the credit, clearly establish the credit conditions, among other aspects.

Whether our company is a supplier company or a small business where clients occasionally tell us that they will only be able to pay us within a month, let's see below a process that will help us to give credit to our clients without incurring major risks:

1. Establish credit and collections policy

First, it is necessary to establish a clear credit and collection policy that includes the maximum level of credit that we can allow, and the terms that we will provide for the payment of the credits.

To establish these guidelines we can take into account the credit purchases that we make, ensuring that the debts we have with our suppliers are paid with the money from collections, and thus there is no need to use our own capital.

Although we could also take into account the practices commonly used in our business sector (for example, our clients may be used to working with 30-day credit policies), as well as the impact that credits could have on our cash flow.

Other lines that our credit and collections policy should include are the means of collection to be used, those in charge of the collections, and when it is possible to grant credit (that is, what are the requirements that a client must meet so that it can be sold on credit).

2. Evaluate the client

The next step is to evaluate the client who requests a loan from us. New customers should be well evaluated, but old ones should not be neglected no matter how long we have been working with them for years.

Something to keep in mind is that a client who always buys from us in cash for increasing amounts does not mean that the first loan he requests from us will also be paid with the same solvency. Every client who requests a loan from us for the first time should be well evaluated. The following are some data that we should collect and evaluate before making the decision to grant a business loan leads to a client :

your basic information.

your experience in the market.

its growth potential.

your credit history.

your financial situation.

your ability to pay.

And to obtain this information, some sources that we could turn to are:

Government agencies.

risk centers.

other providers that are not of the competition (when requesting customer references).

the same client (for example, by requesting their financial statements).

3. Determine the credit to be granted

Once we have evaluated a client and determined that he is worthy of credit, we proceed to determine the credit that we are going to grant him, as well as its conditions (which must be accepted by both parties and, if possible, put by written in a contract).


To do this, we must bear in mind that each client is different and that our credit policy should not necessarily grant the same conditions to all our clients.


Some aspects to take into account when determining the credit to be granted to a particular client, as well as its conditions, are their usual sales and purchases, their liquidity, their assets, liabilities and equity, and the credit history they have had with us in case of having previously granted you some credit.

4. Collection of credits

Once the credits have been granted, we proceed to collect them.
First of all, we establish who or who will be in charge of making the collections. If there will be a person responsible for the collections or if the person in charge of making the collections will be the same person who made the sale.
And then, we make the collections effective, taking into account the other guidelines established previously in the credit and collections policy.

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5. Evaluate credit and collections policy

Finally, we proceed to evaluate our credit and collections policy to see if we have an efficient system, or if it is necessary to make some modifications.

It is advisable to carry out this evaluation of the credit and collections policy approximately every six months. Some aspects to take into account when evaluating our credit and collections policy are the efficiency of the system, the new financial situation of the company, the new situation of the economy in general, changes in the market, new policies of the competition, etc.