At its simplest, credit is based on trust. The word “credit” comes from the Latin verb credere which means to believe or to trust. Before you give credit the four questions you have to ask are:
In your searches and enquiries make sure they are good for these figures.
On an ongoing basis you can revise your own figures using a simple rule where you check back over the account for the past twelve months and find the highest balance that was cleared within terms and multiply that figure by 1.25 to establish a new line of credit for them. If they are good for €10k then you can consider them good for €12.5k.
There are lots of ways to secure your position, which we will be showing you in later editions.
How long can you trust them for?
The answer to this question is usually referred to as your terms. Avoid phrases like 30 days or 60 days, they are far too vague. 30 days from what? Order, dispatch, invoice, date of invoice, date of receipt of invoice, end of month following invoice – specify clearly when payment is expected. 30 days from date of invoice will work where there are very few invoices in the month, End of month following invoice works better if there are multiple invoices. You have to establish the industry norms and decide if you want to use credit as a marketing tool to generate more business through granting longer terms, if this is your approach, make sure you accurately cost the financial implications of this extended credit and make sure your sales will still be profitable as a result.
While this may seem like a complex procedure, your success will depend on how well and how quickly you can evaluate the credit worthiness of every potential customer and to deliver within hours not days.
- Will you sell more as a result of giving credit?
- Do you trust them?
- How much can you trust them with?
- How long can you trust them for? Will you sell more as a result of giving credit?
- Do you trust them
- The length of time they have been in business?
- The type of business they are in?
- The outlook for that industry segment?
- The character of the principals?
- The financial strength of the business?
- Is the business managed well?
- How they treat their current suppliers?
- How much credit they are looking for?
- How profitable is the business?
- How much can you trust them with?
In your searches and enquiries make sure they are good for these figures.
On an ongoing basis you can revise your own figures using a simple rule where you check back over the account for the past twelve months and find the highest balance that was cleared within terms and multiply that figure by 1.25 to establish a new line of credit for them. If they are good for €10k then you can consider them good for €12.5k.
There are lots of ways to secure your position, which we will be showing you in later editions.
How long can you trust them for?
The answer to this question is usually referred to as your terms. Avoid phrases like 30 days or 60 days, they are far too vague. 30 days from what? Order, dispatch, invoice, date of invoice, date of receipt of invoice, end of month following invoice – specify clearly when payment is expected. 30 days from date of invoice will work where there are very few invoices in the month, End of month following invoice works better if there are multiple invoices. You have to establish the industry norms and decide if you want to use credit as a marketing tool to generate more business through granting longer terms, if this is your approach, make sure you accurately cost the financial implications of this extended credit and make sure your sales will still be profitable as a result.
While this may seem like a complex procedure, your success will depend on how well and how quickly you can evaluate the credit worthiness of every potential customer and to deliver within hours not days.