Give 'Em Credit Extending credit to your customers can be a boon to your business, but only if you do it wisely.

"Let's face it-North America runs on credit, so it's a disadvantage if a business doesn't offer some form of it," says Frances McGuckin, CEO of SmallBizPro.com in Langley, British Columbia, and author of Big Ideas for Growing Your Small Business: How to Build Profits and Manage Growth (McGraw-Hill Ryerson). And yet, in tough times-which is precisely when business owners begin extending credit to lure those customers reluctant to part with cash-bankruptcies abound, and it can be riskier than ever to accept incremental payments. Just one or two deadbeat customers can push some businesses dangerously close to the dark side, and other business owners can find themselves so consumed with collections, they're left with little time to run their businesses.

"Extending credit is a [double]-edged sword," admits Robert Smith, 30, president of Robert Smith & Associates, a 5-year-old PR firm in Rockford, Illinois. "I give credit terms so more people can afford my publicity services. I also have people who still owe me money-and who will probably never pay."

To cut down on the latter, Smith implemented a reference-checking policy for his clients, 90 percent of which are small businesses and include celebrities and music production companies. If a customer wants to make payments, that customer has to supply three past business creditors as references. "I call them and find out, Did they pay on time? Did they pay the amount they were supposed to? If they were late, did they inform in advance?" says Smith. "The best predictor of the future is past performance. If they stiff everybody else, I don't see them treating me any differently."