Surreal Entrepreneur

Credit is risk. Now that we have established that, a business owner needs to know that this isn’t a Utopian world. There are people that will take advantage of you and take your money as well. Not everyone is a shark, but we have to prepare for customers to have negative intentions so we can treat them as if they were Mother Theresa.

How do we limit risk when considering allowing our store to offer credit?

Firstly, I have had positive and negative experience with Purchase Orders. While some people have been incredibly efficient and responsive with filing the purchase orders with their companies in order to have the money set aside and ready once billed, other organizations and people were lackadaisical and this help up due money for months. This process should only be available to customers that not only have demonstrated the necessity for a long term partnership to show dedication to the relationship, but also have demonstrated the organization and will to get things done efficiently. This should only be extended with a very air-tight contract along with a storied relationship.
Also you as a business owner need to verify that the person you are extending credit to is tied to the region or area that you are in as well. Purchase orders are feasible between separate parties, but being able to knock on someone’s office door and ask for the status of the transaction is more powerful than a re-sent e-mail with a bill.

Lastly it might be beneficial, if you are in the position to do such, to hold the keys to the service, this doesn’t necessarily mean physically. For example, Pandora radio has a subscription service that I pay for yearly. They know that I’ve paid for an entire year, but they extend out a few days past the year that I’ve purchased hoping that I have the intention of purchasing another year. A lot of products and services have the ability for the manufacturer to access the product (online dashboard, computer, tablet, phone, etc) remotely, so the customer’s incentive to pay their debt is the daunting understanding that they could completely lose the use of that product if they don’t pay.

I would like to stress that relationships are the first thing to focus on when deciding to extend credit to a customers. If you have a reason to trust someone, they might just have a reason to pay you back.

I have become increasingly more aware of the necessity for accessibility in this current economy. Especially when a business revolves around non-essential items, a store owner must do everything they can to be the easiest purchase possible in order to retain a customer. To relate this to real world situations let’s take a journey to the last time you were in a small town feeling store. There were wood floors, lots of trinkets and knickknacks everywhere. The place smelled like a melange of different sweet candles and scents trying to emulate a good memory. You pick up a small children’s toy made of wood, thinking that your friends child might enjoy it, as you walk up to the register line you see in bold letters a sign that says “CASH ONLY”. You put the toy down and slowly but confidently walk out the door.

This has happened to me several times. I’m not necessarily a person who buys on whim but I also don’t have cash on me, prepared to the cent, to purchase a specific item. I use mainly a debit card and credit cards to make my monthly purchases. So when a business doesn’t allow me to use my preferred method of payment, I’ll most likely walk, especially if I don’t really need the item.

That being said, there are several topics that deter businesses from wanting to participate in taking cards. Firstly, there is a fee associated with each transaction. Most companies charge anywhere from 2.5% to 3.5% to use their card charging services. There have been some revolutionary advances in these technologies including the easily accessible and incredibly affordable hardware that simply plugs into your favorite handheld media device and instantly becomes a card reader complete with signature. But the terms of agreement can be confusing and one can get trapped into contracts and lengthy agreements. So read the fine print when choosing a card processing service. This is the largest deterrent for small businesses and I would only suggest a product based store that moves enough volume to not be affected by a 3% shot to margin to embark on getting credit card receiving capabilities.

Also this means the money isn’t instantly in the businesses account. It requires a small holding/processing window and a completion of some online claiming to receive the money from accounts.

The last downside is that you have to make sure that the records that you keep for these transactions are very (I mean overly) secured. This is the difference between sinking and swimming. Imagine if a bored hacker was able to acquire all the information of your customers, that could be a reputation and finance disaster.

Once again though, we need to focus on convenience. If someone else is selling the same thing as you, and they don’t have cash in hand but your competitor has the capability to take cards… who do you think will make the sale?