Giving credit where credit is due
We all want to attract new customers, but the last thing any business can afford is to write off bad debts from non-paying customers. So how do you protect your business without scaring off your potential customers with the Spanish inquisition? Provident Inventory Finance's Matthew Nolan looks at how to get the assurance you need without causing offence.
Current strong industry growth means most fashion companies are taking on new clients. At the time of signing them up and relishing the increased sales, the thought that they may one day cause your business to lose money will understandably be the furthest thing from your mind.
But your clients, like any other business can go under. When they do, companies like yours that have supplied them with their stock are usually amongst the biggest financial losers.
Protecting your business from bad debts is vital to its long-term success, as one significant loss could put your whole business in jeopardy. This protection only takes a few minutes and could save your business thousands. The trick is to do it diplomatically, without offending the potential customer or risking the sale.
The following tips will help you make the right choice about which customers to extent credit too.
* Have set criteria for extending credit to customers that is followed in every instance. Importantly, it shouldn't be onerous, just enough to ensure you know the history and reliability of those you're providing credit to.
* Be sure not to let close personal relationships with potential customers or the desire to make a sale override these common sense guidelines. If you do have doubts, check them out before supplying goods.
* As part of the sales process, ensure you find out sufficient information to know the potential clients details, such as who owns the business and who manages it day to day. A standard application form can encapsulate this and any other information necessary to establish their account.
* Complete a credit check with a reputable agent such as Veda Advantage or Dunn & Bradstreet. This will tell you a wealth of information, including whether they have had prior credit defaults, court action and who the owners and directors of the business are.
* In addition to checking on potential customers through your own industry network, ask potential clients to provide a few trade references from their existing suppliers. When you speak with them, seek details on any late payments or amounts currently overdue and whether they have any current concerns.
* Set out the credit terms provided to your clients clearly, ensuring they are enforced. These should include the number of days credit is extended for, the amount, any penalties and the appropriate method for making payment.
* Have a plan in place for what action will be taken if a customer does default on monies owed to your business, including the preparation of template letters, checklists etc. It's important to track any overdue clients and follow them up before they become a real problem.
* Train your staff on the new criteria, enabling them to understand the importance and how to use the guidelines. They need to be able to pitch it to potential customers as a minimal inconvenience designed to ensure that you will be a long term supplier to their business.
* As your business grows, it's important to have the specialist skills in your business that are necessary to assess and manage client's credit accounts. Whilst initially this may be the business founders, eventually this will be a transition into a separate role and employing a suitably experienced specialist staff member will be necessary.
* Now you've formulated a credit policy, it should also be applied to your current customers, as new customers aren't the only ones that can get into trouble.
So how do you do all this without causing offence? The key is to be polite at all times and minimise any disruptions to your clients. If the above are integrated seamlessly into the sales process, you'll find clients hardly even notice.
By Matthew Nolan