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As a business, your goal is to sell as many products as possible. However, to make ends meet, you often have to sell to customers with bad credit. These individuals sometimes want what you have to offer, but don’t have the personal finances necessary to use cash.
What are you supposed to do in these situations? How can you navigate interactions with customers who have bad credit and safeguard your financial stability?
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Offer Flexible Payment Terms
You want to start by offering customers flexible payment terms. Giving them more options increases the likelihood of making the sale.
For this reason, many retailers work with third-party lenders. These companies provide money to people based on their ratings and perceived ability to repay loans.
Some of the credit card readers available here can also identify at-risk customers. Complex systems interconnect to define ratings and give you more information about the potential risk of working with a specific customer.
Short-term loans are an option, but you need to be careful who you lend to. Customers don’t always have the resources to repay.
Adjust Your Offering
Another approach is to adjust your offering. Providing products and services at a lower price point is a great way to improve customers’ ability to buy.
Car dealerships use this tactic all the time. They know that they will get customers who will try to take out the biggest loan that they can to get the car that they want. But the most beneficial strategy is often to cross-sell them on another product with a similar margin at a lower cost.
Limited-risk approaches can also sometimes work. These are where you offer a single-purchase item to build trust.
Implement Safeguards
There are, of course, other legal approaches you can take to reduce the risks you face. One is to increase the level of safeguards you put in place.
For example, you could ask for co-signers. This way, if the customer with poor credit can’t take out a loan in their name, they can get someone they know to do it for them instead.
Credit insurance can also work. Protecting yourself against non-payment is something you can arrange with brokers, although it means you will have to charge customers more for any borrowing.
Finally, you could look at the possibility of using secured loans. These give you rights over a customer’s assets if they default on payments.
Put Safeguards In Place
Of course, if you do decide to sell to a customer with bad credit, you’ll want to put safeguards in place. These ensure that they can’t come back to you and accuse you of some sort of misdeed.
Here, you’ll want to be as transparent as possible. The more you can provide them with information on terms and conditions, preferably written by a lawyer, the better.
You also want to provide customers with financial literacy resources they can use to understand where they are going wrong and what they can do about it. These texts can prove helpful if they even come back to you and tell you that you didn’t warn them about the cost of credit.
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