Credit Matters Blog

Should You Still be Selling on Credit?

Kim Radok 17 April 2012


The business world has changed dramatically since the commencement of the GFC in 2008. Literally overnight we saw businesses of all sizes collapse into insolvency or just close the doors and leave their creditors and suppliers with bad debts.

Whilst the GFC is over as such, its effects are still being felt today. The truth is, the effects of the GFC will live with us for some years to come.

In the days prior to the GFC, most businesses that I dealt with, had one of two approaches when following up their unpaid invoices. One was a fairly lay-back attitude as they believed they would be paid sooner or later. The second approach, was a reluctance to even ask for payment at all. Business owners were too afraid to follow up for their unpaid invoices because they did not want to "upset" their customers by asking for payment.

Finally when they could no longer put off the contact, payment was usually requested because of cashflow problems or the 120 Day column of the Debtors Ledge was so embarrassingly high. In these circumstances, contacting customers would be a priority until the cashflow situation improved. Once this objective was achieved, you would see the focus on contacting the customer slow down again. Alternatively, the business owner or manager would start suing their customers and drive them away with an unreasonable attitude of "... pay us now or else!"

However, in today's world where sales are at a premium, payments are slowing down, industries 'right sizing' or changing focus; extending credit in an undisciplined manner is no longer guaranteed to grow your business.

If many of these comments sound like something you have heard before from my previous blogs, you are right. Getting paid for your goods and services is too important not to repeat information in a number of different ways. After all, "Without cash...", as accountants continually insist, "... you do not have a business."

Make no mistake, fraudsters and manipulative customers are going to become increasingly good at buying from you - without paying. These 'customers' are always fine-tuning their purchase approaches and working on strategies of not paying you.

Furthermore, they know you will not sue them, except in exceptional situations because you are afraid of spending the money. As credit and accounts professionals constantly hear when the legal action is mentioned, "We are not prepared to throw good money after bad."

From another perspective, it is becoming increasingly expensive to undertake legal action and Governments are not helping by placing barriers in the way of successfully taking commercially viable legal action.

Finally, There are three good reason why you should consider selling on credit terms or at least be more circumspect. These reasons are:

(i) the shortage of cashflow from your customers' own customers;

(ii) the banks are increasingly unwilling to lend;

(iii) the fragility of the non-mining sector in Australia, which means your customer and their customers maybe here today, but insolvent tomorrow.


There are many different sales strategies which are already successfully used by business people, such as, reduced credit terms or no credit at all. For example, service repair technicians will often not leave the office without first obtaining the customer's credit cards details.

Other sales and payment strategies include, part payment schedules, pre-payments, discounts for up-front payments and shorter credit terms. Settlement discount is another great way to extend credit for minimal periods and still sell.

The limit of your ingenuity in establishing your sales and credit terms are only limited by your imagination and willingness to talk to your customer.

Of course your sales team may complain bitterly about having to sell the payment aspect as well as the product. However a wise business person should be able to explain

"A sale is only a sale when the money is in our bank account. Anything else is a give-away and we are not a charity which gives away our assets."

May you be paid today rather than tomorrow.

Kim Radok