Dinn, Hochman & Potter, LLC

Business planning often involves the decision to extend credit

Over time, each Ohio business must make decisions that affect its profitability. For many, one of these decisions is whether to extend credit. There are a number of factors to consider when making this business planning decision.

First of all, is extending credit actually necessary? Some businesses thrive by operating in a cash only environment. Other businesses choose to accept checks and credit cards. Check acceptance does open the door to credit extension in that the business is operating under the assumption that the customer has the funds to cover the check; if not, credit has been extended. Credit cards can be accepted with minimal risk, depending upon the credit card company.

Other businesses choose to extend their own credit. In this case, the customer applies directly with the business and the business representative makes the credit decision. This process requires the company to develop its own credit terms, application process and billing system. Additionally, the business must decide how to handle past due accounts.

In addition to the processes associated with extending credit, there are various laws that must be adhered to as well. The individual responsible for credit extension will want to become familiar with these regulations. This is important in order to avoid consumer protection and collection problems.

The majority of Ohio businesses require consumers in order to make a profit. In addition to acquiring the company's product, it is necessary that the consumer pay for the product. Credit is a common method of payment; however, it does have its own set of issues. By working with legal counsel, the company can make an informed business planning decision regarding the extension of credit and the various means available in collecting receivables.

Source: smallbusiness.findlaw.com, "Deciding to Extend Credit: Ten Things to Think About", Accessed on Dec. 27, 2017

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