Before I get into the slippery slope I’m referring to, how are things for you these days? How’s business going?
I’d love to hear an update… so click the email at the top of the page and send me a note to let me know.
And on that note, I’d also love to hear if there are other ways we could serve you and your Olathe business, right now.
- Decisions looming we could help provide insight to?
- Cash flow problems you need to get to the bottom of?
- Operational hiccups you need some advice on?
- Goals you want to track your progress on more carefully?
- Bookkeeping messes that need cleaning up?
Let me know … we’re here for you:
Speaking of those books, I’ve occasionally encountered a habit among some of our newer clients, one which we work to fix as soon as possible on their behalf…
Should I Extend Credit To My Kansas City Metro Customers?
“Not until the pain of the same is greater than the pain of change will you embrace change.” – Dave Ramsey
It’s a common problem, and I’ve talked about it before: customers are asking you for lines of credit, or “special deals” when it comes to your AR. In an inflationary economy with margins so tight, everyone wants to save a buck or get their hands on a little extra to help fill in the gaps. It’s only natural that you ask yourself: Should I extend credit to my customers?
In a financial environment like we’re living in right now, offering credit could potentially give you a competitive edge. It could broaden your customer base, increase purchase numbers, and garner loyalty. It sends the message that you’re a financially stable business in a time when many are not.
While this is one kind of strategy that businesses are adapting right now, I want to give my honest recommendation: Don’t do it. The reasons are tempting, but for you, it puts you in a difficult situation.
When you extend credit it can put your cash flow at risk and potentially lead to bad debt on your part.
But one of the biggest problems is you end up spending more time collecting money. Time is precious for you in your business and that time could be more profitably used doing almost anything else.
Another big problem is that some of your credit customers, no matter how big and prosperous they appear to be, will never make good on paying you. If the accounts/purchases/orders of those customers who don’t pay you are big enough (or there are enough of them), you could be forced out of business. Just like margins are tight for them, they’re tight for you, too.
If there’s any chance that a customer won’t pay you, it would be better not to make the sale at all. Time wasted collecting … hours spent worrying about payment … and real bottom-line losses are all inevitable outcomes of playing the hit or miss game with granting credit.
If you *do* slip into the credit-granting trap (especially with customers you’re connected to), be VERY clear about payment terms before delivery and be insistent about compliance. Make some constructive noise. Call regularly. Everyone makes prioritizing decisions about where to put their money. If they’re not paying you, they’re paying someone.
The person who gets paid earliest will be the person who showed the greatest determination to be paid. It should be you.
Collection is a critical survival tactic when you play the credit game (and one your accounts receivable department won’t look on fondly). Do everything in your power never to have to use it. But once you must, be absolutely resolute. It should be a priority every day. You have to pay your bills, too.
If your experience is sufficiently unpleasant, the wisdom of not getting into that corner will become very clear.
Instead of offering credit, you can tell customers you take credit cards and put the onus on them. It makes things simpler and keeps you from collection unpleasantries.
I’m grateful for our chance to serve you and your Kansas City Metro business — and we are dedicated to its success. Which means we want to protect you from all of what could tear you down.
In your corner,