Denying credit: Photo of credit manager Thea Dudley

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Construction is a risky industry, and saying “yes” to everyone who walks through the door is a quick way to put your company out of business. Communicating your credit decision can be difficult, but it’s a critical part of building the relationship and saving the sale. When denying credit or offering a lower amount than the customer was seeking, it’s important to soften the decision.

People don’t like the word “No.” But in this article, we’ll take a look at some advice for denying credit to a customer while saving the sale — and the relationship.

Note: This article contains excerpts from Thea Dudley’s credit management course and her book, A Credit Overlord’s Guide to Credit & Collections.

Granting credit is easy

Giving someone good news is the easiest part of a credit manager’s job. When an account qualifies for credit, you’re probably not going to be nervous about calling the customer and delivering the news. 

No matter what kind of news you’re delivering, I recommend always calling the customer. I want to kick off that good communication. Sending a letter’s great, but snail mail takes time. Pick up that phone and start the conversation with them.

“Hey, this is Alex, I’m glad to meet you. We’d love to have you as part of our family here, and we’re happy to kick off your account with a $20,000 credit line.”

Your salesperson’s always going to want to communicate the good news. But I recommend that you take that opportunity to start building that relationship and communicate that information to the customer. This is your opportunity to learn more about the company and start talking them through their business. 

What do they need? If they’re working on a lot of projects, you can peel those off in separate accounts and have their core credit line. There are a lot of things you can do to get somebody more credit if they need it.

Related: What does a credit manager do?

Denying credit isn’t easy

There comes a time in the career of every credit manager, owner, business manager, or sales manager when you are put on the spot when it comes to denying or revoking credit to a customer. 

Regardless if it is a new applicant or a long-term relationship that you have grown apart from, they won’t understand that it is really their fault. It is always you, and your ridiculous requirements that they pay you on time, every month. 

It’s important to address the situation as delicately and professionally as you can. People take being denied credit with the same understanding they would if you told them their baby was ugly (and no, “Bless his heart” will not soften it). 

Commercial credit reports do not fall under the Fair Credit Reporting Act as it is currently written, and you are not required to divulge your sources or the information in a business-to-business situation as you would business-to-consumer. 

Over the years, I have become a pretty fast dancer when it comes to answering the questions “Why did you turn us down?” or “Why did you close our account?” The latter is usually fairly simple — but most likely utterly painful. Credit lines get revoked or closed when a customer is not playing by the rules. Trade creditors are some of the most flexible creditors out there, so when the line gets drawn, there are plenty of examples backing it up. 

Thea Dudley teaches credit & collections

Join the free certificate course to learn the foundations of credit & collections in construction with 30-year industry veteran Thea Dudley.

3 steps to denying credit

Refusing a company credit is a little harder than shutting them down. I use a three-step process: acknowledgement, denial, and the closing. Short, sweet, and to the point. 

1. Acknowledgement

Thank the individual or company representative for the application and interest in opening an account with your company. 

“Thank you for your recent application for a credit account with our company.”

2. Denial

Turning down an applicant or revoking credit is not a pleasant or easy task, whether you are the one doing the turning down or the one hearing it. Being prepared with a specific response using a clear, calm voice will make it easier for you to handle the situation. 

“After careful consideration of the information, we are unable to extend credit to you currently.” 

If pressed, you can say: “No one source of information is utilized to make a decision; all factors from references to commercial credit reports are considered.”

3. Closing 

There can be any number of reasons an account was denied credit, and you can avoid allowing yourself to be baited into a debate about the decision. Tactfully suggest they can purchase Cash on Delivery, and reapply at a later date.

“May I suggest that we would be happy to review your situation again in six months? We really appreciate your interest in our company.” 

When denying or revoking, keep in mind the customer may specifically ask you if you have pulled a business credit report. If you did, you could simply respond yes. But you do not have to share the information on commercial accounts. 

Always avoid derogatory remarks — no matter how tempting. It is easy to get caught up in a heated moment. You did not make this company’s credit history, and credit reporting agencies can only report the information submitted. Like consumer credit, it is a business’ responsibility to maintain and safeguard its credit history. A periodic review of commercial credit reports is recommended. 

How to soften the blow when denying credit

Once I make the decision on extending credit, I don’t want to ever say “I denied you credit.” So my recommendation is to soften it. People don’t like the word “no.”

So you can soften it with: “Hey, we’re going to invite you to a different program. It’s going to be cash on delivery (COD).”

I’m not saying it’s always met happily, but again, it’s how you communicate it. Again, I always recommend picking up the phone and calling the customer directly. They had the courage to just do everything you asked them to do. Have the courage to tell them, “Hey, here’s how this rolled out.” 

People don’t like communicating negative news. They see it as argumentative or combative, but it doesn’t have to be. 

“Hey, I just wanted to let you know. We looked at your credit report and a bunch of other factors. We took all the data and put it into a big credit blender, and we poured it out. The smoothie said ‘cash on delivery.’”

After you let them down gently, the first thing you want to do is figure out how much credit they really needed. Talk to your salespeople about that. If you have to deny credit, give them the courtesy of calling and saying, “Hey, you know, unfortunately, we noticed some things that came up.” 

Not everybody’s going to react well to that, but it gives you the opportunity to address it head-on and perhaps save the customer: “Hey, you’ve only been in business a year. You don’t have any history. I don’t have anything here. You wouldn’t sign a personal guarantee. Let’s do COD for six months. Let’s see how that goes, and then let’s reapply.”

Related: 6 rules to build a good relationship with sales

Saving the sale after denying credit

Some customers will be steaming mad once you break the bad news to them. If the customer is angry, give them a day or two to cool off before you explore alternatives. When you call them back, you have the opportunity to open a few more doors that might just save the sale.

Joint checks, UCC filings, or a personal guarantee are all options you can bring to the table to get the customer the materials they need while still protecting your company’s interests. 

Denying credit to a customer isn’t easy. The customer won’t be happy about it (and neither will your salesperson). But saying “no” doesn’t have to be the end of the conversation, and it shouldn’t be. After all, a credit manager’s job is to find a way to say “Yes” — even if that yes sounds a little bit like “No, but…”