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Once you have decided to formalize your credit policy, whether that entails creating one from scratch or piecing one together from elements your company already has in place, the question is: How do I make my credit policy a good one?
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And better communication is key to building strong customer relationships in construction. They know what to expect from them every time.Ī credit policy is actually an incredibly helpful communication tool. A general contractor likes working with subs and suppliers that follow through on their promises. This is true both in terms of quality of work and in back-office business practices. Build better relationshipsīecause construction projects are complex and highly variable, contractors and property owners alike value consistency and reliability. It was right there in your policy in black-and-white.
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They knew a mechanics lien was coming, because a $20,000 payment was 30 days overdue. If your company needs to take action to collect, your customer has very little room for excuses. It creates a clear and consistent approach. When you submit an invoice or pay application, your customer knows when you expect payment and what will happen if they don’t follow through on time. A good credit policy lets your customer know exactly what to expect, especially when you share it before signing the construction contract.
HOW TO GET FREE CREDITS CRITICAL OPS PROFESSIONAL
Sharing your business policies helps to create a professional impression - especially when you follow through on your word.ĭeep dive: How (and Why) to Implement Credit Policy and Procedures Set ExpectationsĪ huge part of improving payment speed is setting expectations from the start. But beyond cash flow, it also helps establish strong business relationships. It also greatly reduces the amount of bad debts that a company will have to write off each year. When your customers don’t make payments on time, it increases your carrying cost and strains your cash flow.Ī strong credit policy is one of the many tools that construction companies use to speed up payment, maintain a positive bank balance, and even take on bigger projects. The construction industry is notorious for slow or partial payments. Why construction businesses need a credit policy There isn’t any exposure from extending credit when the business is not in the practice of extending credit to begin with.įor most other business, especially those involved in the construction industry, a sound credit policy should be an integral part of the company’s business plan, monetary policy, and overall risk-management strategy. For this type of business, a credit policy is a low priority, and for good reason. Many businesses rarely extend credit, and require payment immediately upon purchase. When it’s broken down into its component parts, it establishes how risk averse a company is vis-a-vis extensions of credit and other monetary policies with respect to accounts receivable.
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HOW TO GET FREE CREDITS CRITICAL OPS HOW TO
How to Write a Credit Policy for Construction.Why construction businesses need a credit policy.
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