Do Credit Agreements Mean Anything?

Does the following sound like you?

  1. Your credit agreements have evolved over time from a word doc to a PDF that needs to be printed off, filled in, signed and scanned back.
  2. Your customers are still printing, filling-in, signing, scanning and sending back incomplete credit apps. Missing information is just part of the process.
  3. If the customer is known to you, you won’t bother with dotting the I’s and crossing the t’s.
  4. If they are unknown, let the printing and scanning tennis begin.
  5. You enter the minimal info into your accounting and inventory systems because you can always add the rest later on.
  6. When customers stop paying and stop returning your calls, you look for a signed credit agreement. Paperwork, files, boxes, repeat.  
  7. When customers don’t pay it’s often considered a “cost of doing business”.
  8. When pay-as-you-go customers have proven themselves and want 30-day terms, you need to re-start the paperwork.

If one or more of these points sounds familiar, you have plenty of improvement to come.

Suppliers offer customers an interest free, unsecured line of credit to help them grow and ask for a signed piece of paper in return. It sounds simple, but inefficient suppliers and unwilling customers upset the yin and yang.

Here are 5 simple tips to make credit agreements mean something.

  1. Take your credit applications online. Removing paper applications saves hours of data entry and chasing missing information. Be efficient and use technology to your advantage.

    Would a business lender sit down with you and make you sign a bunch of forms?
  2. Get an agreement with some type of guarantee. This will provide the necessary deterrence for the customer to act the way they have agreed to act. It won’t get you paid, but will get you paid before other suppliers with no agreement or guarantee.

    Would a lender give you money without signing a contract or providing collateral?
  3. Find out who you are doing business with. Information exists on everyone and everything. Start with a simple google, then check credit bureaus and call other suppliers in a similar space. Often it pays to have relationships with your competitors. 

    Does a lender check who you are before giving you a credit card?
  4. Get a payment method on file. You are already giving customers payment terms and interest-free credit. The least they could do is give you the security of a credit card or bank account. If they are not prepared to do this, they are not prepared to pay you. 

    Does a lender give you a business loan without a bank account to debit?
  5. Keep track and act quickly. If you are seeing the telltale signs of poor trading from customers, stop giving them credit. You can always maintain supply on a cash on delivery basis, but don’t go deeper into the red. Communicate, organise set repayments and ensure the customer is aware of the ramifications if they don’t communicate.

    Would a lender send communication and remind you of your obligations if repayments were missed?

One final thought. We have learned over time is that behavior doesn’t change. When customers offend, then re-offend, they are sure to offend again.