Extending Credit - Overview
Following is some basic introductory information on extending credit to your business's customers.
ID for Credit Transactions
Some states have strict regulations pertaining to the kind of information that customers can be asked for when purchasing items with credit cards. Very often, businesses can't require customers to give personal identification information other than an address or phone number. Exceptions may apply if the bank issuing the credit card requires the information, or if the information is essential to fulfilling the transaction, such as for delivery or servicing. For more information, contact your state Attorney General Web site.
Consumer Credit Laws
If your business extends credit to customers, you should become aware of consumer credit laws.
These laws regulate how you advertise interest rates, how much time you have to respond to claims of billing mistakes, how aggressive you can be when attempting to collect a debt, and other aspects of extending credit and debt collections.
Extending Credit and Getting Paid
If you decide to extend credit to your customers, make sure you establish credit practices that are 1) fair enough to your customers under federal and state credit laws, and 2) strict enough to ensure that your business will get paid. Have a set procedure in place that your business will follow if customers don't pay when they're supposed to, i.e. overdue notices, demand letters, and collection notices.
Mechanics' Liens
Mechanics' and materialmen's liens exist in most states to provide special collection rights to those who provide services or building materials used to improve real property. If the debt is not paid, the lien can be foreclosed, and the property sold to pay the obligation.
Your Customer's Bankruptcy
The debtor has the benefit of an "automatic stay" immediately upon filing a bankruptcy petition. That stops you from taking any further action to try to collect the debt unless or until the bankruptcy court decides to the contrary.
Source: Some content reproduced from Businesslaw.gov
