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BUSINESS BASICS CHANNELS 
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You're
Not Running a Bank; Are your customers borrowing money from you? They are if you let them get goods or services from you before they pay you back. This is called trade credit. Typical terms are for customers to pay within 30 days after you send the bill, although this varies from industry to industry, and even between companies in the same line of business. Why do you let them borrow money from you? You can get more business from them than if you make everybody pay cash at the register. If you are the bank, though, you need to make sure that your customers can pay back those loans before you need the money. How much does it cost you to make these loans? If you are borrowing from someone else, it costs the interest and fees that you are paying for that money. You also cannot use that money for other purposes when it is providing a loan to your customers. That's an opportunity cost. Your money will be safe if your customers are able and willing to pay you on time. The cost of that money is a cost of doing business for you. When a business gets into trouble or the economy softens, it is more difficult for companies to borrow money from the bank or other investors. One of the first things they will do is try to get more trade credit. You can tell if your customers are doing this because it will take them longer to pay bills or suddenly they're buying a lot more from you. The bill that you send out, due in 30 days, has become a bill your customers will wait 60 or 90 days before paying! If you're expecting to receive a $5,000 check on the first of May and you don't get it until October, you'll need to pay your bills anyway. Either you use your own money or you'll have to get funds in some other way if you want to stay in business. So why are these businesses making you loan them money? Because they can - it's become a standard way of business for them. You've got to plan around it so that you aren't caught short of funds. This can be a serious problem for any business and it's one of the principal reasons why businesses fail if they grow more quickly than they've planned. Suddenly the business is very profitable on paper, but you don't have enough in your bank account to pay your bills on time. There are a couple of ways you can handle this. One of the most important is to have a good communications with your customers. Talk with them and learn to understand their business including opportunities that can increase your sales and profits and events that might give you additional risks. Express your terms of trade credit clearly and make certain that you understand the process they've got for paying you before you send them goods or provide services. Make certain that you send out accurate invoices once the goods are shipped or services provided to your customer. Even if you've tracked the shipment through your shipping company, it's a good idea to call and make sure that the right person got it. You can also make sure that the shipment was what they wanted and received in satisfactory condition. If your customer disagrees on a bill, work to resolve the situation quickly, even if it involves re-billing them to provide separate invoices so that you can get paid for the part they agree with and work separately to resolve problems on the other portion of the bill. Keep track of your communications with them - use a phone log and use registered mail if you need proof of delivery for invoices or other information and requests. Running your business well means that you'll set credit limits for each customer. Make sure that they agree with and understand their limits. Review your accounts at least every six months to see if they're meeting their side with your business. Be careful about customers that are growing very quickly - quick growth is a factor in business failure. If a customer comes in with a significantly larger order than usual, review their credit worthiness just as though you were taking on a new account involving that much money. If an account is overdue, do not send them additional goods or provide services until they have paid you. Finally, if your customer is unable to pay an invoice, check the situation carefully before agreeing to a repayment plan. Another key element in keeping your receivables under control is to develop a good relationship with your bank. They are a potential source of credit for you and they can help you make sure before you accept a big order that your customer is able to pay you. Finally, if a customer does not pay you on time, one way to get prompt attention is to have your bank's manager call your customer and their bankers to find out what's holding up your payment. It's also possible to insure against a good customer having a problem paying you. Credit indemnity insurers will insure receivables that are less than 30 days old. Cost for the insurance is reasonably priced, usually between 0.5% and 1.25% of your annual receivables. In any case, credit indemnity companies will pay off your receivables when they reach 60 days. Credit Indemnity Resources American
Credit Indemnity, a company belonging to The Euler Group, is the
largest insurer of accounts receivable. You can contact them through
their website at http://www.euler-group.com/
or by phone at: Global
Commercial Credit Companies also provides credit indemnity insurance.
You can find them at http://www.gccrisk.com/
or by phone at -Cynthia Nemeth-Johannes Time
to run a credit check on your client? If you are checking a business' credit, you can rely on Dun and Bradstreet. Dun and Bradstreet has a database of more than 60 million businesses around the world. They have business information from 209 countries around the world and update their database almost one million times a day so they can provide you with the most up-to-date information. In order to use their services, you need the location and name of the business or their Duns' Number. Find Dun & Bradstreet at http://www.dnb.com/ , their global site. I actually use http://www.hoovers.telebase.com/ to access the Duns' reports as it is difficult to find in navigating the DNB site. -Cindy Nemeth-Johannes
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