Credit period

Credit duration is the period of time a company chooses to extend credit to a customer.

In many cases, especially in B2B, where two companies trade with each other, credit is often granted - and thus a credit period.

Whereas many B2C situations, where companies trade with private individuals, often don't involve credit periods - for example, when private individuals buy groceries in the supermarket or buy things in a DIY store.

What should you give in credit time?

It's basically up to the seller what credit period they want to give their customers - some sellers want no or short credit periods, while others can often give long credit periods.

From time to time we hear about customers saying that their customers think you need a credit period - but that's not true - you don't get credit when you shop in a supermarket, for example.

Why give credit time?

In many cases, credit and thus credit times are about a practical element - a tradesman buys a tool from a DIY store, which is written on a bill and sent to the company's accounts department.

This is often easiest for craftsmen and their bookkeepers.

But credit and credit periods can also give you a competitive advantage as a seller - because credit periods are often an advantage for small and medium-sized businesses.

For er du eksempelvis håndværker eller restauratør – kan du med gode kredittider indkøbe dine materialer eller råvarer i en uge, sælge dem og først betale senere. Det betyder, at du måske når at få pengene fra kunden, inden du selv skal betale for materialerne – det kan betyde alverden for din likviditet, da du dermed ikke har penge ude for materialer eller råvarer.

Customers often tend to choose companies that offer good credit and credit periods, precisely to achieve good liquidity. This gives you, as a company with good credit, a competitive advantage over competitors who do not offer the same good credit.

Disadvantages of granting credit

Just as credit can give you as a seller and your customers competitive and liquidity advantages, all credit also has an inherent risk.

Because credit always carries a certain amount of risk - the risk that the customer won't be able to pay when the credit period expires and the invoice has to be paid.

The company must therefore carefully consider whether the competitive advantages outweigh the inherent credit risk of extending credit. It's often a difficult calculation, but unfortunately it's often best done by looking at backward-looking figures.

Minimize your risk by extending credit

There are many ways to minimize your risk associated with extending credit.

One of the most common methods is to segment your customers - and provide credit based on your own or external recommendations.

For example, new customers might get short credit periods and small amounts of credit, while older customers get larger credits and better credit periods.

Another way to minimize your risk associated with extending credit is to credit check your customers - use public registers, but also credit systems like Qatchr that can give you recommendations on credit times, amounts and the like.