February 4, 2022Cash Flow , Late Payments
Everything that happens leading up to signing a new wholesale customer is the hard part. You need to create a product, then produce it at a price that stacks up.
You then need to create a brand, get the name out there, visit customers, negotiate pricing, volumes and get them to say yes.
As I said; the hard part.
Now comes time to sign them up. This should be a celebration of all the work you’ve done to this point. You drop off a paper credit application or email a PDF. It might have a Credit Card form, or a Personal Guarantee or a Direct Debit request that needs completion.
Then…radio silence….. for the rest of the day….. and the next day.
So, even though you extended terms from 7 to 14-days and gave them a 5% volume discount…. could it be possible that the simple act of asking for billing details or a personal guarantee will be the proverbial straw that severed the camel’s spinal cord?
This article discusses the anxiety and apprehension that a salesperson feels when they are asking a new wholesale customer for a personal guarantee or a billing method.
To put this into perspective, do you remember the last time you applied for a loan?
It’s likely you went into a branch or started applying online. At that point, you were met with 5 obstacles to overcome before one cent of credit came your way.
Firstly, you provided ID, usually 100 points and sometimes certified.
Second, you signed the contract or agreement you were given.
Third, the financial institution undertook a detailed credit risk assessment.
Fourth, you guaranteed it, personally or with an asset.
Lastly, you provided a bank account for the financial institution to debit the repayments from.
You get the loan and almost everyone pays it back on time.
So why do you care about the process of a traditional lender?
There is an equivalent in the world of selling wholesale. The equivalent situation would be when you find a new wholesale customer:
You ID the customer, so you can confirm it was them signing the paperwork?
You verify the ABN and company are active and details are correct.
You get a signed contract with binding terms and conditions.
You do a risk assessment either by ringing around or through a credit agency.
You store bank or credit card details in an encrypted system.
Deep down, you know that ticking every box might be overkill. Trade-credit carries a shorter payback period with fewer variables, so let me tell you a secret…. you actually don’t need to do all of this.
The requirements for staying on top of payment terms
The only requirements are a set of agreed rules and recourse if one party ignores those rules. This recourse must be actionable to create deterrence.
For shorter terms like 7 and 14 days, a signed contract with a company says you have the right to charge and a payment method gives you the ability to bill the customer.
For longer terms like 30-days and larger sums of money, a contract outlines your rights; and a personal guarantee provides a significant level of deterrence, but a stored billing method acts as your security.
It’s Binary. You either have the rules of the game and the ability to punish rule breakers, or you have a significant risk, so what’s important?
The customer sign-up process
A paper or PDF format doesn’t support what you are trying to do. Manual company and directors checks take time and cost money. Take it online with a system that does this for you.
Your credit terms and conditions need to include:
a definition of an approved invoice, where someone has accepted the goods and not notified your accounts team of any issues within a short timeframe;
the payment terms of approved invoices; and
a remedy if payment is not made on time.
Preventative Measures
As far as we can tell, the only way to make sure you have the right protections in place is to use preventative measures. As I previously stated, you need a set of agreed rules and an achievable recourse if one party ignores those rules. Make sure:
You have the correct parties listed;
A clearly outlined set of rules;
Signatures and dates on the contract; and
A billing method is in place with the absolute right to charge that billing method.
What it boils down to
For this to work, your customers need to trust you. This means you need to be aware of the regulatory requirements for the PCI DSS and BECS schemes. PCI DSS governs the use of credit cards and handling of information, whilst BECS does the same for Direct Debit from a customers bank account.
Both systems have different requirements including 256 BIT Military Grade encryption, certain agreements and distinct authorities. By following the regulatory guidelines, your customers will know you mean business and know their details are safe.
To put it simply… if you want great customers, on a great payment rhythm and no disagreements, have a fast, easy process that works and make sure customers know that you take their financial information seriously and treat it with respect. Your cash flow will thank you for it.