How To Create a Credit Policy

A lot of business is done by credit cards today. It provides the consumer an easy way to "buy now and pay later." Research has shown that accepting credit cards can increase your business volume by up to 35%-50%. That is why it is essential to set up a merchant account for your own business. But when you decide to accept credit cards you need to develop a credit policy. This is simply the criteria you seek in a customer or client that defines them as credit-worthy. Nevertheless, you must acquire some basic knowledge if you want to learn how to create a credit policy.

The first step in creating a credit policy is to set standards for credit. If you want someone to have a minimum income of $35,000, only people who meet that standard can have credit with you. Do not base your criteria on race or creed because of the legal ramifications; plus it just isn't ethical.

You need to decide how much money to allocate toward credit card usage. Credit cards fees can range from 1.5% to 3% on average--and sometimes even more. Some merchant accounts offer a low percentage per transaction but tack on flat fees as well. Know your merchant account policy and set aside the necessary funds to cover them.

You will need to list the minimum criteria for credit cards so you can show it to someone if they ask you. Employees should at least know the minimum criteria.

Next, establish a limit for customers based on the minimum criteria. You should establish higher limits for those with higher incomes. Hence, you will need to put a cap on what you will allow and set up ranges based on your criteria.

Establish the minimum credit scores you will accept for issuing credit. Credit agencies have definitions of these scores. For example, a score of 635 is considered fair. You must decide if a "fair" credit score is worthy enough for you to extend credit.

Next, have your credit policy written up by either your attorney or credit professional. Then go over the policy with an attorney.

Finally, implement your credit policy and maintain its consistency. It is essentially a legally-binding agreement in which you must abide. You will need to analyze how the credit policy affects your business. You may need to change it over time, which will require a rewrite with your attorney.


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