Credit Matters Newsletter
In This Issue
- What's New At Credit Matters?
- Quote Of The Month
- Monthly Business Observation
- Monthly Business Conundrum
- This Month's Business Inconvenient Truth
- Latest Blogs & Readings
- Special Topic
What's New At Credit Matters?
The focus of the October newsletter is about reviewing a number of aspects regarding risk across your business.
There are no brochures attached with this month’s newsletter
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
“But in finance, risk is like energy. It cannot be destroyed, only shifted from one place to another. - “… it allows creditors to shift the risk to someone else.”Robin Wigglesworth, How bonds ate the world’s financial system, AFR Features 7/8/2023
Monthly Business Observation
The truth of this month’s quote is evident today more than ever when we see business owners and managers try to avoid risk to their reputations and their inability to manage risk in business. As a result, they seek to blame other parties and circumstances on their inability to pay their employees correctly, cover operating costs properly, slow paying customers, or customers buying habits, for example.
At the end of the day however, being involved in business, always involves some level of risk. It is therefore essential that all business owners and managers do not add to the costs and losses caused by a risk when trying to divert the risk to others. All that does is potentially increase the costs and losses to the business rather than acting proactively to manage or eliminate the cost in the first place.
Creditors also try to avoid the risk to their finances when invoices remain unpaid or credit claims are not processed. Instead, they blame the courts, lawyers, bad debtors or fraudsters for the increased costs of legal action to defend their rights in courts.
Likewise, management, sales and marketing blame credit managers and accounts receivable employees for not collecting enough payments, holding up sales or acting as debt collectors which in turn slows down sales.
Credit and accounts managers are not immune either, as they like to blame sales for not processing customer credit claims quickly enough, thereby creating more work and inhibiting the collection of outstanding invoice payments.
Wherever you look in business, or even in the consumer environment, people are addicted to reducing the risk to themselves by shifting the excuses for their problems onto another party. Many of the risks we talk about or are exposed, could be mitigated, or not occurred at all if people accepted the risks of doing business, or in seeking finance, rather than trying to shift the risk or blame to others.
At the end of the day, a known or exposed risk needs to be resolved because it never goes away. Trying to shift the risk to others by blaming them or other circumstances is fraught with danger. Even if you are successful on transferring the cause of the problem on the first occasion, it can come back to haunt you even worse later on.
Monthly Business Conundrum
The message goes out from those trying to sell their products and services regarding payment systems, that customers now demand an almost endless number of different digital payment options. That is a fact well recognised. The problem however, is that as businesses take on board these systems, they are often advised that these payment options are less risky and expensive instead of accepting cash. Unfortunately, however, often the cost to the targeted business and their customers, can be far more expensive when cash is not accepted.
The truth is that digital payment systems do offer some advantages, rarely however are these systems cost free. In fact, in some circumstances, digital payment systems can be more expensive to both the business and their customers.
What the digital payment system sellers do not warn their prospective customers however, is that some of your customers may not want to or cannot pay digitally and would rather use cash. On this point, you cannot blame the salespeople for this omission, because it is their role to sell the advantages of their digital payment product(s). It is however, the responsibility of the customer to know about the negative aspects of digital products, as they should about all the risks which may occur to their business.
One example of risk or cost when having only digital payment system is when those customers which want to pay for cash, walk away. In these situations, your business has just lost another sale. Worse still, when a customer walks away and finds out that your competitor accepts cash, and their products and services may also be cheaper, your business has lost a customer for life.
Irrespective if your business offers cashless or cash payment methodologies, there is a cost. The cost is not always just the cost of processing the payment, there are other costs which can only be measured in hindsight later on.
The banks in Australia are a perfect example. For example, the banks advertise their digital payment options with the slogan “… of being able to complete your banking anytime and anywhere!” The problem however is that you may not be able to do it at a bank branch or with cash.
The banks claim they have measured the cost of keeping branches open and/or reducing the use of cash. On the other hand, have they also measured the loss of customers, the reduction in sales and the other unintended consequences when a branch is closed. Other costs which may not have been calculated include factors such as their green-washing of their ESG responsibilities, increasing costs of government restrictions and legislation, plus the possibility of other businesses which may be able to offer niche services in competition to the banks, etc.
All the same problems experienced by banks, also applies in the commercial and B2B or B2C environments. Allowing customers to pay via different methodologies, including cash, may be the difference between success and failure in the near future.
This Month's Business Inconvenient Truth
When in business, nothing is simple and when it comes to dealing with customers. Customers come in all shapes and sizes and your business always needs to be on the lookout for those which add value to your business and those that do not.
In particular, the need to understand the attributes of all your customers is paramount when your business extends B2B or B2C credit. After all, your business, unless it offers finance of course, is not a bank or finance company which can charge interest in the normal course of business. Despite this fact, many of your customers will consider that it is their right to treat your business as a source of interest free finance.
Therefore, being able to differentiate between different classes of customers is essential. For instance, the three main groups of customers are:
- gold class customers, and size of sale should not be the only criteria,
- those customers which add a value to the business via other measurable metrics, and
- those which are just hard work to even breakeven and should probably be moved on if an equitable trading arrangement cannot be established.
One of the arts of business is to offer their goods and services in such a way that ensures they are not offering free interest to their customers, and that it also hides this fact from customers. It is also paramount, that your business has a number of sales strategies, which may include:
- understanding the value of saying NO to certain customers,
- being able to sell on a cash/payment upfront basis, or
- short-term payment options or with dollar-limiting account balances, etc.
The truth of business is that as there is good and bad debt borrowing. This principle also applies when selling on credit. It is important therefore to understand when extending credit, whether it is good or bad for your business.
Latest Blogs & Readings
New words enter our language all the time. Shrinkflation is another one.
Credit Matters is a financial risk management resource centre for the Australian business community. If you are in business, Credit Matters is your ideal source of financial risk management solutions.
Future Opportunities & Possibilities
Credit Matters is continuing to grow and provide marketing and knowledge about financial risks to the Australia business community.
Futhermore, we invite marketing and knowledge ideas from our readers and contributors on how we can assist our respective firms grow. If you have any ideas, please contact me at info@creditmatters.com.au.
If you are interested in finding new ways to reach your marketplace, why not try Credit Matters. Our prices for advertising are very reasonable and advertising packages are on offer to make any cost, even more affordable. So if you are interested in reaching your customers at the right price, please contact Kim at info@creditmatters.com.au for options.