As a general rule of thumb, any business can expect to
write off between 3-5% of debt as bad. That's if the business's receivables are managed properly. If not, that percentage will be much higher.

For any small business, especially one that's in its first couple of years of operation, cashflow is a paramount consideration. Many small businesses fail simply because they run out of cash during this period.

So don't throw away money owed to your business just because collecting money is unpleasant. The very survival of your business may depend on it.

In this article we consider whether you should extend credit and, if so, what processes you should implement to maximize your chances of getting paid.

WHETHER TO EXTEND CREDIT

You may prefer to have a strict payment-up-front or on-delivery payment policy but the realities of a competitive business environment are such that, in order to be competitive, you may have very little choice.

Assuming you have no real alternative in your line of business other than to extend credit, you need to have a policy for your business about who gets credit and who doesn't.

How rigorous your policy is depends on how much money we're talking about for a particular job. If you're performing a service or selling products worth several thousands of dollars, you're obviously going to be more concerned about the creditworthiness of your customer than if you're only talking about a $50 sale.

So what are the considerations you should take into account for major orders?