What's New At Credit Matters?

Welcome to our February newsletter. The focus is on new and existing customers, and the issues which are pertinent when evaluating their business.

The Special Topic this month is about identifying any unintended consequences for your business by going digital.

I must have got a bit excited about something as I wrote two blogs this month.

Kim is available to help with your questions and concerns if you need any assistance, and as always, the first chat is always free of charge or obligation.

Quote Of The Month

“Success depends upon previous preparation, and without such preparation there is sure to be failure.” Confucius

Monthly Business Observation

The pace of change and being able to adapt your business has increased manyfold over recent years and nothing should be taken for granted when dealing with new and existing customers. It is essential that you review your business periodically to ascertain that you can:

1. access the latest information from a varied group of information providers,
2. ensure there is a team-oriented environment operating within your business,
3. assess whether the latest technology tools are suitable for your business’s requirements, and
4. continue to look for the best employee types for all operational areas within your business.

Two examples stand out when assessing customers’ needs. The first is about opening accounts for a new customer. The second is when an existing customer requests either an extension or an increase in payment terms.

In the first case, a new prospective customer would like to open an account with a credit limit just before month end. Dollar size of the limit does not really matter. You are aware that the sales team have been working on this customer for some time, or the customer is a major coup for them because of the dollar size of their orders.

Irrespective of the dollar potential of the customer's orders, what do you do? You are usually under pressure to approve this new account. If time and resources mean you are unable to adequately verify the payment and financial integrity of that new customer, the temptation is still to open the account. The problem you have however, is that you are aware that the client may be unable to source goods and services because they are on stop supply elsewhere. Alternatively, you also know that asking for an account just before end of month, is a tactic favoured by fraudsters which have no intention of paying your business within terms, or at all.

The second example is the existing customer requests a sudden increase in their credit limit or for payment terms. It is a wise business person or their credit manager who takes the time to ascertain whether the extended terms are justified.

In the future, requests like the above are going to occur increasingly as economic conditions toughen. For instance, when customers’ cash and liquidity are challenged. We know already that increased interest rates, business insolvencies and a lack of savings are having an adverse effect on the economy.

It behoves management therefore to ensure it has the necessary people and business support services available to allow the adequate preparation and ascertain the situation for each potential and existing customer. After all, not all customers will have the resources or the desire to pay your invoices as they fall due in the future. At the end of the day, your business’s reputation and future depend on your people making sound commercial decisions on the trading terms which it offers to each customer.

This Month's Business Inconvenient Truth

Let me count the ways your customer is stealing from you! Better still, why don’t you review and count the loss of profit situations in your business to find out if I am right or wrong. Based on that information, you can then create appropriate strategies to prevent these losses.

The way the commercial and the real world operate today, is often based on “… how can I manipulate the system for my advantage?” There are many of you which will probably read this observation and decry that it is rather a jaundice view of the world. Might I therefore suggest before you dismiss this observation out of hand, you review your own business’s dealings. It would also be valuable to review the media for stories of what is actually happening around you in society today.

Unfortunately, many of the people and businesses which we interact with, are not in a good place financially. As a result, in an effort to stay viable, we often see good people compromise their values by stealing, or businesspeople slow paying their suppliers by various means. You will also be saddened to see stories about family and friends stealing from their acquaintances.

The fact is that as times get tougher, particularly in the short term, increasingly we are going to see stories of shoplifting, businesses entering insolvency administration, family violence and elder abuse. These are indicators that the above observation may not be too far from the truth.

In light of these current realities, it is important to create strategies which show up as quickly as possible the current behaviour of your customers. Your anti-theft protecting strategies could include:

1. ensuring your terms of trade are applicable and up to date for all customers,
2. employing people who understand the language and behaviour or fraudsters,
3. the offer of settlement discount,
4. payment upfront with a good discount,
5. part payments,
6. reduced payment and dollar limit terms,
7. a focus on customer service,
8. offering payment methodologies appropriate for your business,
9. prompt processing of all credit claims,
10. review the causes of all credit claims as you try to identify if these claims are valid, or an an attempt by your customer(s) to slow pay you, or are created by your own business mistakes, etc.

Whether you like it or not, our customers will be trying to increasingly steal from our business in the future, so they can survive. The evidence is already around us today in the media. As a professional businessperson, manager, or other risk or credit manager, it is your responsibility to be aware of these situations. Sadly, if you do not create the necessary anti-theft strategies, it is increasingly likely your customers will steal from your business.