How often does a client ask to borrow money? Maybe they ask to pay over time, or for terms, or want to pay a small deposit with the balance in 30 days, or bug you in any way to deliver your goods and services before they pay in full.
A Credit Screen
Last week I wrote about how you pay interest forever on bad debts. This week I want to offer a simple way to limit client borrowing while virtually preventing bad debts. As a side benefit, you’ll project a more professional and corporate image, letting your clients know you’re serious about your business. This technique identifies deadbeat clients without robbing them of their dignity. But just mentioning it will stop deadbeat clients in their tracks.
What is this trick? A credit app. Referring to your credit department projects credibility and stability while preserving your cash flow. It lets your customers know you take credit seriously.
But this process powerfully deters deadbeats.
Suppose a client has asked you – or one of your sales reps – to extend credit. Instead of hemming and hawing, smile sweetly and reply “Of course. I’d be happy to send you a credit app. It usually takes two weeks to get a response back from our credit department once you return it. When we get that back we’ll know the terms they approve. Until then, we’re happy to continue doing business on a cash basis.”
Identify Deadbeat Clients
What happens now? If the customer has bad history with other suppliers, they’ll drop their request immediately and never bring it up again. They don’t want you discovering they’re a deadbeat.
If they’re on good credit terms with other suppliers, they’ll likely ask you for the form. Then you’ll have two weeks to run a credit check and I recommend you do it. Then you can decide.
This turns around an uncomfortable moment into an image-building measure. Most clients will view this bit of bureaucracy favorably. It alludes to a larger and more stable organization than they thought which gives you power. Of course, they don’t need to know you are the head of the credit department.
Do you accept credit cards at your business? How do you handle it when a client hands you a card and asks to charge a trivial amount? Do you have a minimum price or a surcharge? Do you eat the fees? The first two methods piss off the customer and the last pisses you off.
In a future article I’ll share a way you can use credit card purchases to improve customer service while adding more profit to the bottom line. And we’ll discuss how you can flip around the Cash Conversion Cycle to make you more money. It’s another creative tip from the Business Doc. Until then,
profitable Business All!
P.S. Do some of your clients incur bad debt? Can you see how this technique could help? Let me know your thoughts by leaving a comment. And thanks much for your shares!