Look Before You Leap into Credit

Every buyer is also a seller. What if some of your clients cotton on to the idea of negotiating credit terms with you? Your cash registers could stop ringing fast. You have inventories piling up just like everyone else. It is tempting to put off receiving payment to humor a customer. Friends are worst: who knows when one of them will turn out to be broke like a bank? Credit rating is the order of the day.

Bankers are supposed to be best at gauging credit-worthiness. Unfortunately for us, they have played hokey, with the Fed as a partner in sub-prime. You have to look out for yourself. Learn how to evaluate requests for credit from your customers. Remember, your boss is also an internal customer. He or she could also ask for a rain check on your pay check. Salaried slave or intrepid business owner, you can take the following steps to guard against credit land mines:

1. Never agree in a hurry. Negotiate with time on your side. Remember your old banker: “I will have to check with my superiors”. Let the world know that you do not have sole authority to take credit decisions on the spot.

2. Ask for a written proposal. It may seem unreasonable to do this. However, unrealistic assurances are more likely if they are only verbal. Again, remember old bankers, and keep an application form ready for customers who need credit. Remember, you are not in the emergency funding business.

3. Do not stray from your business purpose. Do not buy the debts of others. You may consider selling your goods and services on credit. However, speculation is as bad a word as ‘derivatives’.