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When is Asking for Trade Credit Right?

Posted On - 29/01/2016 14:16:58

Getting behind why customers ask for credit is more than just being inquisitive. It's about understanding if there's anything that could sway your decisionsIn "The Trade Credit Trap" we set out the tests to apply when giving credit. And we stated we'd discuss more about why customers ask.

Getting behind their motives is more than just being inquisitive. It's about understanding if there's anything that could sway your decisions.

Other reasons that tip a "Yes" into a "No". And reasons that make a "No" indisputable. 

Join us in this blog to find out more…

Does it make sense?

Whatever the reasons levelled at why you should give credit – STOP! Does the business make sense? Sure, MegaCorp buying from you is great - but is it right? Do large businesses - usually with purchasing functions – pop into local small businesses and buy? They usually manage buying tighter than that. They may even have preferred suppliers and agreed pricing.

You follow? This isn't a slur on you we're just saying don't get dazzled. Yes, maybe they have a policy for supporting small businesses locally or are in an emergency because they've been let down. And maybe what they're doing seems odd because, well, it is. You won't know unless you ask: "How did you find us?" Or even: "Don't you have a preferred supplier for IT goods and services?"

Such a simple Ask

"So, you'll invoice me in 30 days?" The beginning of a conversation or not, it makes the point. Customers will ask for credit, many will expect it and how they ask may will lead you towards it.

Don't feel obliged. Wanting credit is a strange request.

There's a time value to money so credit must mean paying more over cash. Help them avoid the extra. Pause, take a break and ask: "Thank you for asking, I'm always pleased to consider requests for credit terms. The price I've given is for cash, I've haven't factored in the cost of financing. Could I find out why you're asking - it's the more expensive option?"

Does the customer appreciate what they're taking on?

We're not suggesting you actually ask this - just bear it in mind. Customers with clean credit records are one thing those with no accounts asking you to give them their first are another.

Should you be happy they've asked - it's only you competing for payments? Or should you worry they don't get the complexity of what they're taking on?

Giver or receiver it's the same: managing credit is an administrative burden. The cash position changes – bank statements become ‘unreliable'. It's not just a matter of whether credit is financially justifiable, it's is it right for the customer? Money aside can they cope with the task? If they pay cash to all their other suppliers, paying you won't be the norm. So are you confident they're organised enough to keep tabs on things? Avoid being the guinea pig - do them a favour, get them to pay cash. Ask: "You are aware a credit account will cost you more?" Or even: "Will it be you I contact to confirm payments will be made?"

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Also in this series
  1. Tax and Spend
  2. When is Asking for Trade Credit Right?
  3. The Trade Credit Trap
  4. VAT - A Blessing in Disguise?
  5. Conventional Wisdom?
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