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Selling On Credit Terms: Best Practices To Follow

Selling On Credit Terms: Best Practices To Follow

  • 21 May 2020
  • By OCBC Business Banking
  • 3 mins read

In this post, we guide you on what to look out for when extending credit to customers. Understand the best practices for selling on credit terms, with insights from our panel of successful business owners and leading business experts.

In the business world, buying and selling on credit is a widely accepted practice, especially for business to business (B2B) transactions. It is, therefore, vital for business owners—especially new start-ups—to weigh the pros and cons of credit and implement the best practices when offering credit terms to customers.

To help you make sense of the topic, we spoke to our panel of successful business owners and leading business expert to share with you their unique insights.

Ready to find out more? Let’s jump in.

Benefits of Selling on Credit

Not all businesses are cash-based. If you are selling to other businesses, you will likely encounter requests for credit terms of 30 days and up to as long as 90 days. Generally, the larger the business entity you are selling to, the longer the payment period they may request.

Desmond Lim—Co-Founder and Executive Director of DNA Medical Supplies—shared the importance of maintaining a balance between the amount of business you do with customers who pay for goods upfront and those who request for credit terms. This balance helps to protect cash flow and reduce risks while keeping sales numbers up.

“As a business owner, you need to weigh up who to grant credit terms to,” Mr. Lim advised. “While you might want the business from certain customers, it’s important to establish their credit-worthiness and whether it might be hard to collect payments from them on time.”

Managing Your Risk

Francis Chan, Deputy Head (Disputes) of Rajah & Tann Legal Basix Practice Group at Rajah & Tann Singapore, recommended that businesses should consider the credit-worthiness of their customers before agreeing to sales on credit terms.

“Key points that need to be considered include how long the company has been in business, their amount of paid-up capital, and whether the company has been involved in legal disputes with suppliers in the past. This information can be readily accessed through business profile searches, credit bureau reports, and litigation searches.”

Some business owners like Desmond offer incentives—such as the giving of small discounts—for customers to pay cash upon delivery.

Also, rather than accepting large orders from first-time customers, business owners should see if the order can be broken down into smaller ones instead. If you can’t break up the order, break up the payments by requiring payment to be made upon project milestones completed.

Marc Goh—Founder of digital marketing agency Design Prodigy—adopts this approach to managing credit risk, “We start our customers off on smaller credit amounts, and we get customers to place a deposit before we start the project.”

Make Yourself Indispensable

Marc shared that the long-term solution to customers who do not abide by their payment obligations is to make your product something that only you and your business can offer. He emphasised, “Increase your seller power by differentiating your product or service. Don’t let it turn into a commodity; if no one else can provide what they need, you are in control.”

Mr. Alvin Ang—founder of events marketing firm Jump Solutions-concurred with this too. “Our clients know we will always deliver so they want to maintain a good relationship with us. These accounts will not go bad.”

"Increase your seller power by differentiating your product or service. Don’t let it turn into a commodity; if no one else can provide what they need, you are in control.

— Mr. Marc Goh / Founder of Design Prodigy

Best Practices When Extending Credit

You must monitor what’s owing to you so you know your cashflow sufficiency in the next few months. The easiest way to do this is by using a proper accounting software which sends payment reminders to clients and produces aging reports with a few clicks. You can try it for free with OCBC’s Start Digital Pack.

Make sure you’re covered from a legal standpoint in case your customers fail to pay. Francis of Rajah & Tann Singapore shared that every business should have a proper sales contract written in simple English which states clearly:

  • Who the parties to the contract are
  • What the contract is for
  • What goods or services are being supplied and when they must be supplied
  • What the payment terms are
  • Dispute resolution and governing law clause

If you are using quotations, purchase orders, delivery orders and invoices instead of a formal sales contract, Francis also advised to include standard terms and conditions sheets with your documents.

Legal Recourse to Recover Outstanding Amounts

While no business owners would wish for things to go south, if it happens, Francis said that you must study the contract terms carefully and approach the dispute in accordance with the contract terms, otherwise it may amount to a breach of contract.

If your claim against another business is less than S$250,000, you are required to comply with the State Courts pre-action protocol which includes having to first issue a letter of demand before you file a lawsuit. The practice directions also require that the letter of demand contain certain information such as the basis of the debt and proof of the underlying agreement to the debt.

Summing Things Up

We hope the valuable insights from our panel of business owners and leading experts have will stand you in good stead when you start selling on credit. Let us know if they have made a difference in helping you side step potential pitfalls in the road.

Here at OCBC, we always look to share useful advice and information to help you progress in your business. Let us be your partner in every step of your business journey.


Any opinions or views of third parties expressed in this article are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. Before making any decision, please seek independent advice from professional advisors.

No representation or warranty whatsoever in respect of any information provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

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Desmond Lim — Co-Founder and Executive Director
DNA Medical Supplies Pte Ltd

Desmond Lim — Co-Founder and Executive Director
DNA Medical Supplies Pte Ltd

A professional in the pharmaceutical industry with more than 20 years of experience, Desmond’s vision is to improve peoples’ health through health foods and supplements. DNA Medical focuses on the development of probiotic-related products and collaborates with other GMP manufacturers to launch and market their biomedical products through its branches in Malaysia, Indonesia, Korea and affiliated offices in Vietnam and Myanmar.

Francis Chan — Deputy Head (Disputes)
Rajah & Tann Legal Basix Practice Group

Francis Chan — Deputy Head (Disputes)
Rajah & Tann Legal Basix Practice Group

Francis is a leader of Rajah & Tann’s Legal Basix practice which provides growth-stage legal advice, representation and documentation to emerging enterprises, start-ups, SMEs and high growth companies. Francis advises clients in respect of commercial disputes involving shareholders / directors, tenancy, contract and debt recovery. Francis specialises in employment law and has advised institutional employers and C-suite/management level employees including conducting investigations and disciplinary proceedings, litigating employment disputes, and engaging with and resolving disputes with the MOM / CPF Board / TADM / TAFEP and union representatives.

Marc Goh — Founder
Design Prodigy

Marc Goh — Founder
Design Prodigy

"Technology can be used to effect a quantum jump" is a key learning from Marc's 8 years of service in the army. With that, he started Design Prodigy, a data-driven marketing agency that turns best-in-class marketing and advertising technology into solutions for companies. Over the years, he has helped many brands to digitise their business and serviced multiple MNC clients with an APAC presence.

Alvin Ang — Founder
Jump Solutions Pte Ltd

Alvin Ang — Founder
Jump Solutions Pte Ltd

Alvin's experience in handling operations with Fortune 500 companies enabled him to recognize the importance of Human Capital and had brought him successful partnerships while developing Jump Solutions. Alvin has a passion in grooming people into the best versions of themselves and uses it to help clients in restructuring their businesses, sourcing and training the people they need to further enhance their footprints in markets.


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