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Are You Embarrassed to Ask Your Client for a Credit Application?

Posted on June 29, 2018 in Business Tips

There is nothing to be embarrassed about asking for trade references on a business that is requesting credit from your company. It is a normal practice in business and most companies already have prepared a company credit app for suppliers.

Coming from a small business that offered credit terms to customers, I know the uncomfortable feeling when it comes to asking for a company credit application from a prospective client. I still remember the awkward look I would get as if “How dare you ask about our credit?”

Its funny how that sounds, but here we have a client asking to use my money, my bank credit line, my inventory and my staff on a credit term basis and somehow I’m the bad, evil inconsiderate rude person asking for credit references.

What you say, and how you ask will get you all the information you need. I have to assume you are at this point because the client is interested in purchasing products or services from your business because you offer value. The competition is perhaps selling the client on credit terms, so it is very normal for your client to assume that he has already passed the credit application process . They usually think that any vendor that comes along wanting to do business with them will grant them credit automatically.

Here is a suggestion:

“Hi Joe, I am very happy to know that you will be sending us business and I want to make sure we can accommodate your future needs in regards to credit. My bank line of credit requires that we have a credit application on file to insure we are following their guidelines in establishing credit with our customers. I need to know how much credit you expect to have with us, what terms you are expecting and based on the trade references you have will result in the amount I can offer you.”

A large number of business owners have trouble overcoming this part of the business. If your company offers credit terms, then that means you are providing financing for your client and it is important to have parameters in place.

Every time you offer credit to a client, you deplete your cash position of the business. Although some people may debate that the receivables are showing as positive equity on the balance sheet, it does not help a business pay bills and suppliers that are due.

A good rule of thumb is don’t offer credit terms longer than what you have with your suppliers or it will cause a cash flow shortage. Offer terms that are within your range of credit with at least a 50% cushion.

If you feel your receivables are going to overextend past your payables obligations then get a factoring company in place to finance the receivables to avoid any cash flow shortfalls. 1st Commercial Credit can establish a factoring line of credit in 3 to 5 working days for business selling on credit terms.

Suppliers beware!

There should always be caution when opening up a credit line for a potential customer and you should look out for some signs that many business owners ignore.

Take extra precaution if you have been trying to acquire an account for many years. Your company and sales people in the past were always ignored and the client never seemed interested in your services or products. Overnight things changed, the client receives you with open arms and ready to purchase from your company. Something has happened with the existing suppliers, and price is no longer an issue. These are usually symptoms of an account that has reached their credit limit with the other suppliers and they are ready to start a new account with you, so long as you give them credit terms of course.

Article provided by Raul Esqueda