Any small business has to be careful about offering credit lines to its customers. If you’re a B2B company, that could mean making sure you get paid on time for the services you’ve provided your customer. If you’re a B2C company, it could mean arranging payment plans or subscriptions so your customers can pay you over time rather than all at once.

The retail consumer financing industry is a billion market, with opportunities for growth and innovation. The industry faces challenges around technology, risk management, and regulation. Either way, providing any kind of credit for customers requires that businesses consider these potential hazards:

Managing Credit Limits

You should manage credit limits based on risk. If you set your customer’s credit limit too high, you expose yourself to the risk of having to write off a large amount of bad debt when it becomes clear that your customers won’t be able to pay off their debts. On the other hand, if you set a credit limit too low, you may lose out on valuable business from customers who would have been happy to repay their debts in full if only they had received more money in the first place.

The best way to determine what a suitable credit limit would be for each customer is by looking at their individual financial situation and history with your company – but there are some general rules about how much money people should have available for spending and repaying loans:

• • Sustainable – The spending level must be sustainable over time; an increase in income cannot be expected indefinitely (at least not without new employ ment or higher wages).
• Profit Potential – The opportunity cost associated with lending this sum must outweigh potential profits generated by extending additional credits (or increasing existing ones). For example, at one point my brother needed an extra $500 loaned privately so he could make payments on his car insurance policy before it lapsed again; however, I refused because it would mean losing out on other profitable opportunities such as investing in stock markets instead!

Setting The Right Pricing

Pricing is a key factor in determining the success of your credit program. Pricing should be based on four factors:

• Risk to the customer
• Risk of the product or service being purchased with a credit
• Risk of the transaction (i.e., how much cash flow is available to repay a loan)
• The channel through which customers purchase products and services (i.e., retail store, direct mail catalog)

Make Sure Customers Don’t Abuse The Terms

As a business, you want to make sure your customers aren’t abusing the terms of their credit cards. This can be done by monitoring:

• The limit on their card
• Their transactions (e.g., purchases and payments).
• Their payment history.
• Their financial situation (i.e., do they have other outstanding debts?).
• The customer’s credit report and score will tell you if they have a history of paying off their debt or not.

Tip for all: The accelerated insight platform is one solution that can help you succeed in this challenging market. It allows you to reduce costs by eliminating the need for an expensive third-party processor or merchant account, which can cost up to 10% of each transaction. And it offers faster settlements through direct bank connections, which means instant access to funds instead of waiting weeks for ACH transfers.

Keeping The Credit Loss Rate Low

• Use a risk-based approach to lending. You can use a number of factors when determining whether or not to lend money. These may include your customer’s income, history of debt, and other details. It is important that you consider all aspects of your customer’s ability to repay the loan before making a decision.
• Use credit scoring models from reputable sources. There are many different ways to build out a model for how much risk you take on when lending money out as well as what kinds of loans you will offer consumers based on their profile information, such as age and gender; however, there are also companies that specialize in helping businesses build these models themselves so they don’t have to pay third parties for their services every month!

Avoiding Bad Debt

It’s a common misconception that credit card fraud is only a problem for the merchant, but in reality, it can have a huge impact on your bottom line. Bad debt costs businesses millions of dollars each year and can cause you to lose customers if they’re not confident in how safe their data is with you. The best way to avoid this is through proper credit card fraud detection tools, which help you keep track of where your customers are spending money and identify any suspicious behavior early on.

We hope that you now have a better understanding of how to offer credit to customers and avoid bad debt.