When a new application for credit or trading agreement is received, an evaluation process takes place to determine whether a credit facility should be offered or declined. If there are any issues which cause concern on granting the facility and the credit department wishes to decline the application, usually an internal bunfight follows between sales and credit.
At this stage, management steps in and makes the decision to establish the facility “for the good of the business”. What rarely occurs is the potential customer being asked point blank, “Why should we extend credit to your business?”
It is only by asking such a question and obtaining the answers can an agreeable decision be possible between all parties and with the best interests of your business at heart.
What are the issues which credit might put forward to sales and management which would result in the potential customer being asked the question? Obviously there a quite a number of possible reasons, however these would be a good starting point.
The evaluation process conducted so far has revealed one or more of the following issues of concern.
1 There is no identification of senior management personnel, or of how to make contact by email, or telephone, or in fact, of the trading entity which owns the business.
Today, knowing your customers is deemed an important factor in protecting your own business’s integrity as well as getting paid. Knowing who is within the senior management team is therefore equally important in evaluating their professional standing.
2 The customer’s website has no telephone, or few email contact points of contact, in regards to service issues, accounts or invoice enquiries.
If this information is not readily available, how are you going to deal with problems effectively which occur from time to time? Of course, it is almost impossible.
3 You do find however there is a portal for suppliers to lodge their invoices and track invoice payments. Again, there are no telephone numbers to call for special enquiries, or for unresolved problems dealing with unpaid invoices. Furthermore, you often cannot identify the type of billing system they demand suppliers use to submit their invoices.
Supplier portals are meant to help both suppliers and their customers work efficiently. The truth is unfortunately often far different. It is not usual to find information so lacking, and the systems so poorly set up, that frustrated suppliers waste a lot of time and money trying to get paid.
4 Various employees within your firm have heard through their professional networks, that the customer is a slow payer, or raises false claims, or is in general, difficult to deal with over these concerns.
So often this evidence is overlooked, or treated with a lack of respect. History usually shows, as there is rarely smoke without a fire, so this information usually proves to be correct.
When granting B2B credit your firm is lending its money, unsecured, to other people. Failing to respect this fact and completing due diligence properly, is one sure way to put this money at risk. One of the key aspects of granting B2B credit profitably is when in doubt, ask your customer; “Why should we extend credit to your business?”