Let's start with the story.
A butcher had a very healthy restaurant round. But all the restaurant owners demanded 30 days credit; it was given freely. Worse still, not all the restaurant owners paid the butcher on time.
The butcher had become a bank, he was financing the restaurant business with his free cash.
Then Covid 19 lock down hit.
The restaurant round disappeared overnight. Credit control and money chasing became a top priority for the butcher. It took ages to get the outstanding invoices paid, and they didn’t get it all…..
But that's not the end of the story….
Their shop had queues, long ones, customers bought meat and paid cash there and then, no argument no one asked for credit. Now cash flow was hugely positive, no credit control required, and profit margins had doubled. Stress levels are non-existent. So many positives for the butcher.
Now the butcher is asking….
What would you do next?
Most businesses, especially new ones, assume they must give business customers credit to secure their custom. But why give credit to a business that doesn’t pay on time, or not at all?
Nobody has an automatic right to credit; it must be earned. Credit is very precious and mustn’t be given away lightly. Once you’ve given credit, it's very hard to remove it. Why would you risk a double loss: the goods and the payment?
What can our butcher do?
Here are the benefits…
I can hear you saying yes but….. ‘that doesn't happen in the real world’.
Well maybe it doesn't, but here is one thing you can do for every client (pre lockdown) who was slow to pay, you had to chase, or they didn't pay at all. They are the ones that absolutely do not deserve credit.
Use the suggestions above for all these clients. After all you won't lose anything if they go elsewhere because they probably wouldn't pay you anyway!
This is another great read. Does Every Client Deserve Credit Terms? This blog was written by Mark from Friend & Grant. It’s an accountants’ view as to why you should not give anybody credit. It’s well worth 10 minutes of your time….
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