Money, Money Everywhere, Yet They Still Pay Late! Granting Credit Doesn't Have to Be a Gamble.

This article has been adapted from a speech presented to CMAC attendees at a conference in Las Vegas in October 1998. The ideas presented are worth repeating here. You simply need to imagine yourself in a casino hotel as you read on.

The difference between gambling and taking risks is nothing more than your ability to manage the process. You can't manage the odds at the tables. That's why it's called gambling. But when you grant credit, you take a business risk, and that risk is manageable. However, if we don't use all the tools available to us, credit granting becomes a gamble instead of a business risk. Let's look at how gambling sometimes finds its way into our companies' credit departments.

The Game of Slow Pay

Everyone attempts to manage their cash flow, especially the cash going out. Some companies pay you late simply because they can. Others pay you late because they must in order to survive. Your job is to find out in advance which is which. You need to decide who is playing a game of bluff, and who is playing Russian roulette with your money.

Nolan Bushnell, founder of Atari and Chucky Cheese Pizza Houses, told his staff that every sale they make is a gift to their customers until the check clears. As a credit professional, you are the key player in turning a sale into cash before it turns into dust. Everyone in your company has a job to do: the sales staff believe, and rightly so, that it is their job to sell the company's products to customers they believe will pay for them. The shipping department has the job of delivering those products safely to the customers. At that point, they're both on to the next sale because they think that last one is done. There's only one department left to recognize Bushnell's wisdom, and that is you.

The good news is you don't have to have long-range vision to be effective. As a general rule, only a small part of your decision is based on your customer's distant future. You are most concerned with current events: today's sales, today's receivables and your customer's prospects for the immediate future. Current financial health, then, is the first criterion for credit decisions.

New York Credit, a Los Angeles-based credit management outsourcing firm, has published a board game called "The Game of Credit," in which the players maneuver their pieces through a variety of credit decisions, including all the avoidance tricks that most of us have seen in real life. And the truth is, for some of our customers it really is a game. They don't delay payment because they're short of cash; they delay payment because it is their company's cash management policy. They wait us out to hold onto their cash longer, and they get by with it because, in many cases, we let them.