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The Trade Credit Trap

Posted On - 22/01/2016 08:30:26


Don't Get Bullied into Credit

"I get it everywhere else…" "I need it for cash-flow…" "I won't do the deal without it." What are they talking about? Credit.

If you've ever heard comments like these from customers pushing for credit, you're not alone. And so it can seem trading with businesses has to entail it. That if you don't provide credit you're the problem.

But does it have to be like this? Join us for the special small business Trade Credit session we staged at our 2015 Open Day…

May contain nuts

Just so everyone's clear, this session was for small businesses thinking about offering Trade Credit, or those in the early days of doing so. This doesn't mean those well versed weren't welcome, just that they may learn less.

It's also important to understand the session wasn't about taking credit cards; it was about offering terms to business customers. The type of credit where payment is delayed by 30, 60, 90, or whatever days.

We staged the session for a number of reasons. Not least that we've seen well intentioned customers innocently do it and only just avoid ‘bankruptcy'. We also did it because it fits with the session ‘VAT – A Blessing in Disguise?' and how becoming VAT registered will likely lead to more credit requests .

The cold hard truth

For all its sophisticated image, credit is serious stuff. Forget every reason levelled why you should give it – it all boils down to one thing. Offer credit terms and you loan your money for that period.

However well you know the customer, every time you do you don't just risk not getting paid back, you risk your reputation, even your business. If a debtor pays late or not at all, it will hit your cash-flow.

At best you'll find money's tight.

Worse you'll be short and have to approach your creditors for help.

Scary version? They decline; you become insolvent and end up bankrupt.

Sure, the debtor's at fault. But you made the debt possible. Watch the video for more.

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