Don't Be a Bank (Unless You Are)

Don't Be a Bank (Unless You Are)

December 1, 2011

“The sweetest two words are ‘next time.’ The sourest word is ‘if.'”
-Chi Chi Rodriguez

How are the holidays going for you so far? Drop me a note, and let me know if I can help you in any way. Apparently, sales from Black Friday were up a whopping 16% from last year, which, as I write this on Monday morning, is driving the stock markets  way up. Of course, this may not quite be the indicator we all might hope it to be — after all, Black Friday is notorious for big sales and for penny-pinchers. I might feel better about our economy’s direction if we get a few quarters of sustained consumer spending, outside of the big sales, under our belts. Regardless of the present happy economic numbers, I’ve been seeing lots of businesses being pressed by their clients to “help them out” around this time of year. Other business owners are taking a look at their financials, and perhaps beginning to panic. While I completely understand benevolence (and practice it as often as able), it’s not necessarily the wisest business decision. I think you get this too… but here’s a short reminder, just in case.

Mark Clark’s “Real World” Business Strategy Extending Credit To Sinking Ships

It’s a common problem: customers asking you for lines of credit, or “special deals” when it comes to your AR.

So…should you extend your customers credit? My recommendation?  Don’t do it. Tell them you accept credit cards. The biggest problem about giving credit is that you end up spending time collecting money.  Time that could be more profitably used doing most anything else. The second biggest problem is that some of your credit customers, no matter how big and prosperous they appear to be, will never pay you.  If the accounts/purchases/orders of those customers who don’t pay you are big enough (or there are enough of them), you will be forced out of business. If there is any chance that a customer may not pay you, it would be better not to make this sale.  Time wasted collecting … sleepless nights worrying about payment … and real bottom-line losses, are all inevitable outcomes of playing Russian Roulette with granting credit.

If you *do* slip into the credit-granting trap, be very clear about payment terms before delivery, and insist on any compliance to the day. Make a lot of constructive noise.  Be persistent.  Call every day.  Visit your creditor in person.  Let him know how important the money is to you.  Wear him down.  He is paying someone.  The person who gets paid earliest is the person who shows the greatest determination to be paid.  It should be you. Collecting money is a critical survival tactic.  Do everything in your power never to have to use it.  But once you must, be absolutely resolute.  It should be your first priority every day.

If your experience is sufficiently unpleasant, perhaps you will understand the wisdom of not getting yourself into that corner in the future. Hope This Helps!