If you’re running a small business selling goods to other small businesses, the chances are you’re giving credit. There’s also quite a good chance, especially, I would guess, if you’re a ‘family’ type business, that there’s a bit of ‘give’ in your credit policy. You know what I’m talking about. Supplying customers with too many open invoices, or too much balance in excess of their agreed limit. Perhaps you do it because you understand their predicament, perhaps you’re too weak to say ‘No’, or perhaps you’ll think they’ll stop buying from you if you don’t keep extending them credit. The truth is that they very well might stop buying from you. And the problem is that the reason behind their decision probably won’t be financial, it’ll probably be personal. In my experience, the worst thing about giving customers credit is not the endlessly mounting Accounts Receivable ledger, it’s the fact that it almost always ends in tears.
Customers Don’t Like to be Told ‘No’. They take it personally.
Even with the best intentions and the most regularly paying customers, you’ll almost certainly get into the territory of having to make uncomfortable decisions about extending credit. Perhaps in very large corporations it might be possible, out of sheer bureaucratic indifference, to stick to a hard-and-fast credit policy, but I doubt there are many small businesses who can just say “Sorry £500 is the limit”. We all know the phone call: a trade customer right on the upper edge of his credit limit who is just desperate for a delivery and who will pay you first thing on Monday morning – promise. How can you say ‘No’? And what kind of person will you look like if you say ‘No’? All the credit control manuals and “How to Run a Small Business” books say that you should absolutely refuse and that your customer will understand and respect you for it. Sorry, but that’s bullshit. Your customer will absolutely not understand and will absolutely take it personally, since as the business owner, the decision is entirely yours. They may well decide not to bother buying from you any more and you know that. You’re treading on thin ice now. How do you know when to say ‘No’? Truth is, you don’t. You just use your best judgment and sweat it out at night while you lose sleep over who owes you money. Wouldn’t it have been better to never get into this situation? When this customer approached you three years ago and asked “Hey, do you mind if I pay you after delivery? I’ll pay you the very next day and it’ll never be more than £100”. Maybe you should have just politely said “Sorry, we don’t do that”. End of story.
Customers Don’t Like to be Credit Chased. They take it personally.
Then there’s the monthly call – the one you dread making. How many times have you heard these common excuses?
- “The person that deals with the payments is on/has been on holiday”
- “I’m sorry, it’s just been so busy over the last couple of weeks, I’ll pay you tomorrow”
- “Can you just give me a little more time, we’re really slow at the moment”
- “Really sorry about that, I’ve been in hospital recently”
What type of heartless bastard doesn’t accept those excuses? But what happens after the third or fourth month running without payment and the continual stream of excuses. Do you insist? Do you get angry? Do you make threats? Well I’m sorry to say that once you’re into that territory, this customer is gone. Finito. And it’s not because he doesn’t want to pay you. No, it’s because of your disgusting aggressive attitude towards credit chasing. He, after all, knows that he’s a decent, honest guy with full the full intention of paying you straight away, so why are you harassing him? It’s only been, like, 4 months and you should know he’s been closed for a month while he was in Tenerife and his girlfriend’s mum’s sister’s had chicken pox. Didn’t you know that?
Wouldn’t it have been better to say ‘No’ 12 months ago when he asked you if you wouldn’t mind just making an exception this once because he didn’t have his card to hand?
Customers Can’t Organise Their Accounts Payable. You’ll Have a Disagreement. They’ll Take it Personally.
This is the one that gets me most and I have to say, it’s probably the most common one too. When customers pay up front, there are exactly zero administrative complications. An invoice is raised and paid in the exact same precise second, their account balance is always zero and their statement is a nice, shiny blank A4 piece of paper.
When credit starts, all that goes out of the window, and if your customers are anything like mine (restaurants), they will have their brother Tony doing the paperwork at the bar at 1am and will be leaving you voicemails (at 1.30am) saying things like
Hi Jon, it’s Brian here from the Turkey & Mongoose. We’ve just received your statement which says we owe £1350.96, but according to our records we only owe you £2.50. Of course, the chef is a woodpecker and eats most of the invoices, so we might have missed the odd one here and there and oh, I found one down the back of the cooker the other day but it was covered in pickle sauce so the accountant wouldn’t accept it. Would you mind sending us a copy of every invoice since 1998. Of course, seeing as all this is in fact your fault, we won’t be paying you for another month. Please let me know if you disagree with any of this.
Wouldn’t it have been easier….