A new view of the credit process.(selected topic)

A few years ago, a CEO asked me how his company can avoid credit losses. I said it was simple: he should act like a fast food restaurant, where the customer orders, then the customer pays, then the customer gets the product. No credit losses. No credit risk. No credit. He said he couldn't do that; that his customers required credit in order to buy from him.

That got me thinking about credit in a new way, about how credit is used to "buy" sales. I see companies make the same mistakes over and over again. They think that easy credit is a tool to get or keep a customer. These policies often backfire and have the opposite effect. In the short run, they may get you customers, but in the long run they cost you money and can put a major strain on customer relations.

I started thinking about the concept of a payment gap, that distance between the sale and payment--the larger that gap, the greater the cost of maintaining that credit. Ultimately, a credit-seller can get into the Red Zone, where the costs of that credit can approach or even exceed the profit in the sale.

It got to the point where I was giving the same advice over and over again. After helping so many companies with the same program, I eventually decided to put it all together in a way that can help a lot of people. I began to implement a system to help companies not only navigate the choppy waters of lending credit, but to use their credit departments as relationship enhancers with their customers. It all boils down to parity with your customer as a fundamental aspect of a healthy buyer/ seller relationship. The system consists of four pillars that together build, enhance and support parity in your relationships with your customers.

Four Pillars of Parity

Preparation is what you do before you enter into a binding transaction (or provide goods or services) in order to develop a clear understanding of the parameters of the transaction and the benefits to the customer for paying promptly or in advance. Having an effective credit policy in place and the tools to clarify your policy can help companies define standards and expectations of customers and protect them in the event of slow pay. Contrary to common belief, pre-sale paperwork does not kill a sale. Like many delicate situations in life, presentation is everything. Add consideration and respect to a legal-size credit application and customers are more likely to sign it.

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