One of the factors to take into consideration in establishing a credit policy will be the standard practices in your line of business. Your customers may work with 30-day payment terms, which is common in many businesses. While your small business is not obligated to accept terms imposed by your customers, it is important to recognize these standard or common practices. Many businesses operate on a standard pay cycle, issuing payments once a week, for example, based on an accounts payable system that ages invoices and calls up for payment those that are due. In many cases, when the invoices are entered into the system, the due date will be assumed to be, or will default to 30 days.
This 30-day payment period is taken as an example and it varies, depending on the nature of the business, the type of industry, general economic conditions, and individual companies’ financial policies and practices.
You will want to make it easy for your customers to pay you, and provided your small business cash flow permits, it may be acceptable, and even beneficial, to accept the standard terms of your customers.
Or you may be in a business that normally involves payment on cash terms; that is, you receive payment for your sales basically by cash, check, credit or debit card, or electronic transfers of funds. In this case, your credit policy would involve the exceptions, when you would extend credit to a particular customer based on a certain set of circumstances. But even in the case of an exception, the same principles would apply in deciding whether to grant credit to that customer.