Thoughtful Thursdays - Sales And Credit

I had lunch with a good friend and business owner last week and he told me they had just been informed that one of their customers had gone into bankruptcy protection. The account was relatively new and developing a good history of on time payment and growing purchases. This is normally a positive situation worthy of praise to the sales team for closing new business.

The financial exposure was significant, but fortunately my friend's business will survive where many others might have been dragged down with the customer.

The question to think about today is what can a business owner do to mitigate these occurrences?

First on my list is to have company policy that covers the terms and conditions of sale. Examples of what might be covered in such a policy could be annual credit checks, terms of payment, ongoing reviews of maximum credit to be extended, shipping terms, return procedures and penalties for late payment of invoices. You may also want to consider accounts receivable insurance and/or factoring in a set amount to your costs as a safeguard. Train your sales team to ask questions that will keep your business aware of your customers' financial health.

From a sales point of view we all want to sell more. From a financial point of view we want to be profitable and sustainable. Accepting orders without appropriate regard to the consequences of non-payment is a recipe for failure. We have all taken a chances in order to be the 'good' supplier and gotten away with it - lucky us.

Don't depend on luck, businesss is business and being vigilant will help you stay ahead of looming pitfalls.

There are no guarantees you will not encounter bad debt. In my experience it is only a matter of time before does happen to you and you want your business to be prepared and able to withstand the fallout.

Good selling.
Richard