A few years ago I heard of a screen shop in Canada that did not offer credit. Sounds improbable doesn’t it? It did to me too so I spoke to the owner about the no-credit policy. What he told me made perfect sense, provided you can make it work in your own particular marketplace, as he did. The challenge of course is overcoming a deeply entrenched expectation of at least 30 days credit in the industry.
His point was that credit, while an expected practice, has many hidden snags. First you put yourself through the agony of weighing up the sale against the loss of a customer for the sake of waiting 30 days for your money. And almost always the drive to make sales prevails and one crosses fingers and grants the credit. But, as he said, for one thing, 30 days hardly ever means 30 days; it always seems to drag on for more. Then there is the hidden administrative burden of calling (often more than a few times) for one’s money and as time passes with no cheque in sight, there is the rising anxiety that perhaps it will never arrive. And what a lot of shop owners don’t seem to realise is that an unpaid debt is much worse than an unmade sale because not only have you not made the expected margin, but you’ve given away inventory for nothing. And to add insult to injury, you’ve spent additional time and money trying to collect.
So if a cash-only policy is impossible in your marketplace (and only if it’s really, really not feasible), what to do? Well, for one thing, a strictly-enforced credit policy should be documented and made known to your customers. Those who will not or cannot comply may be worth dumping because chances are that they’re going to take you for a bad debt, sooner or later. In the meantime, they’re going to put you through the cash-flow wringer because your suppliers and service providers are going to want their money on time, and if it’s not flowing in, how can it flow out?
Time to give credit strategy and management some thought?