Dealing with customer credit

We business owners often have a messed-up psychology about giving credit to customers.

Rather than using the customer credit system to our business advantage, we let our customers take advantage of us.

1. They run out of liquid cash for their current project.
2. They get breathing space in a tight cashflow situation.
3. Some say they are regular customers, so they expect credit relief.
4. Giving credit is a market norm in your business model.
5. Some just want to take it and ghost you.
6. Some have reached the max credit at the other vendor. Now they have come to you.
7. Some customers think they are KING, and a king should not be let down by not giving credit.
8. Some sell you dreams of BIG ORDERS in the future for a credit today.

When a customer asks for credit, it's not just you who is selling. The selling is taking place from both ends.

The owner is selling the product, and the customer is selling the idea of why you should give him credit. 

The one who doesn't bend first makes the sale.

Giving credit is not bad, but an uncontrolled credit & recovery system is the fastest way to dry your liquid cash reserves. 

Liquid cash is like Oxygen to your business, and the cash flow system is like lungs. If you run out of liquid cash, you run out of oxygen, and your business suffocates.

How not to let credit seekers take advantage of you?

1. Understanding credit seekers' psychology
2. Having a credit safe zone
3. Building a robust credit system

Let's unfold these 3 one by one.

1. Understanding credit seekers' psychology
If you re-read the 8 reasons listed previously on why customers seek credit, you'll see the reasons 1, 2, 3 & 4 are actual, real reasons a customer might have.

If you find a way to solve them without affecting your operations, you earn the customers' loyalty.

The reasons 5, 6, 7 & 8 arise from a messed-up money psychology of the credit seekers.

Your hands will get burned if you try to put out those last four fires. Spend a few minutes a day on reading and learning about human behaviour & psychology.

Understand "why they do, what do?"

2. Credit safe zone
Track your daily cash flows. Divert a percentage of that cash flow to a credit reserve that doesn't affect your daily operations.

For example, if you have 10 debtors and can utilize Rs. 100,000 from your daily cash flow as credit money.
(Debtor = a person who owes you money)

Allocate Rs.10,000 for each debtor. When their credit reaches the limit of Rs. 10,000. 

Cut-off! Ask them to clear previous dues.

This keeps you in the safe zone, where you give credit without affecting your daily operational money.

DO NOT GIVE CREDIT just because you can't say NO.

3. Having a proper credit system
A proper credit system means...
a) Customer-wise Credit Tracker
b) Credit due notifications
c) Credit limit notifications
d) Effective recovery methods

Setting up all these systems may take a while. 

So learn to say NO! A clear non-egoistic NO.

A NO that has no anger, no regret, no guilt, no putting them down. This will save you a lot of stress and money till you set things up.

We mess up in credit recovery because we feel ashamed to ask for our money from the debtors. So build such a system that makes them accountable to pay on time.

What are the other reasons credit seekers give you? 

Comment below. Let's have some fun reading them.

That's all for this week.

See you next Saturday.

If this resonates with you, reply with your answer.

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