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What would you do to “save” a sale — even when you find out a potential or current customer has bad credit?

One of the most important parts of my job as a credit manager for the last 16+ years was finding a way to say “yes.”  Sales people have difficult jobs, lots of competition, and usually work nearly 24/7 —  so the last thing they want is for them to finally get a credit application from a potential customer…and having the credit department say no.

Finding a way to say yes not only helps the relationship between credit and sales, but it helps your employer make more sales. Finding a way to say yes even in tricky situations is a great way to stand apart from the competition — where they may have already turned down the same application.

Reduce risk by being proactive

The best way to ensure you will get paid is by having proactive credit policies in place. Creating a credit policy that outlines the steps your company will take to process a new credit application — from pulling credit reports to putting the policy in writing for everyone to see and follow — will greatly increase your approval rate and ensure less risk to your company.  

Prequalifying a customer

When salespeople research and approach a potential customer, having a prequalification process in place is a great way to start. The prequalification process means the credit manager has at least done a basic review of the customers creditworthiness. The sales person won’t waste time meeting with a customer that they already know was denied during the prequalification process and can help them focus on those that appear to be creditworthy.   

The best way to prequalify a potential customer is by having the sales person collect their business name, address and phone number. Have them give you this information in the beginning, before they spend too much time trying to reach the customer. With this information, they can have the credit department obtain basic financial information, industry references, and asset availability. With this information, the sales person will have a better picture of what will happen when they meet with the customer.

Qualifying a new credit application

We all know how to review a basic credit application, what steps we need to take to verify their financial situation, and the requirements our business has for either approving or denying an application. While it may hurt to turn down a sale if the results come back negative, the actual cost of a customer that doesn’t pay is much higher than the amount of the lost sale.

However, we are in the business of saying “yes” here! It’s always a good policy to approach these situations with a “Yes, if.” Try digging a little deeper into their situation — ask about upcoming receivables and check additional trade references. 

Thea Dudley teaches credit & collections

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5 tools to save a sale to a risky customer

Maybe they don’t have good credit, have a history of missed payments, or don’t have good trade references. Let’s take a quick look at the different options available to extend credit and still reduce risk.  

 In a survey given to over 100 credit professionals nationwide, here are the top five tools used to say “yes.”

1. Offer cash in advance

Offering cash in advance means that you will give a quote to the customer of what their purchase total would be and then they would pay it before the material is ordered. 32% of survey respondents said they offer cash in advance.

Typically, suppliers will take a business check, credit card, cashiers check or cash.  

WARNING:  Do not accept a personal check unless you have the driver’s license of the name on the check and a phone number, and have verified the check through the bank or another check verification service, such as United TranzActions, etc.

Additionally, watch out when taking credit cards; they can be a tricky situation. Be sure to have all your backups and ducks in a row. The risk is when having the customer “dispute the transaction” with their credit card company and not being able to prove it is theirs. They will take the money back, and you won’t have much else to go on.

2. Utilize joint check agreements

29% of survey respondents said they would utilize joint check agreements

They would verify the creditworthiness of those involved in the project that the material would be used on (i.e. the general contractor or property owner) and if they met requirements, they would draft the joint check agreement.  

Watch the verbiage on these if you receive one from someone outside of your company. You want to be sure that the terms and conditions work for you.

3. Take a personal guarantee

Typically personal guarantees are used when a business owner is willing to take personal responsibility if the company doesn’t pay. They would first verify the financial status of the personal guarantor and then outline an agreement. 18% of survey respondents said they would take a personal guarantee. 

Learn more Credit Application Series: Personal Guarantee

4. Set up a payment plan for the customer

Typically, payment plans are a great way to build a relationship with a customer in a questionable financial situation.  11% of survey respondents said they would set up a payment plan when faced with this kind of customer. 

Start slowly! Take time to build the relationship. Possibly start with 75-50% down, then order the material, and upon delivery require the remaining balance. Or, break it into fours: 25% down and 25% a week. 

There are many options you could choose to use! In your payment plan, be sure to put your terms and conditions, and what will happen if they break they agreement (default judgment, repossession, service fee, etc.).

5. File a Uniform Commercial Code

A Uniform Commercial Code (UCC) is a legal form that a creditor files to give notice that it has an interest in the assets, used for collateral for the business or owner. 10% of survey respondents said they would choose to file a UCC.

Manage your credit policy while learning to say yes

These tools may sound like simple steps, but being able to effectively manage your credit policy will take time to learn. 

“Yes” isn’t normally a word that’s in a credit managers mouth, but those who embrace it have been able to get help and advice from their networks, have been able to generate more profit for their companies, plus more commissions for their sales people, all while minimizing risk for all.

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