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Weighing customer credit risk

Hey Thea,
Hoping to get insight on how to handle some issues. We have been receiving pushback from potential customers when we have made the decision to not extend them credit. If a report comes back as high-risk, we are setting them up as collect on delivery.

I also had customers reply to our request for a credit application, stating they do not fill out applications and don’t understand why we won’t set them up with a credit limit. The other problem we run into is customers dictating terms. They want way more time than we allow. Any advice is appreciated. The current economic setting is a huge concern for us.
—Perplexed at the pushback

Dear Pushback Perplexity,
Wouldn’t it be great if we could just add a line to the credit application that simplified life? Like a note you passed in middle school—How would you describe yourself as a credit risk:
o Made in heaven
o Adorable
o Not bad
o Need help
o Really hurting
Check a box and let’s get on with the discussion.

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But most people know when their credit is a cornucopia of crapulence so they start the bullying process. The louder they yell or the harder they push, the less likely it is that they are creditworthy. I am pretty direct. I explain what the issues are—exactly. Low credit score, negative data, collection items, tax liens, whichever of the 31 flavors are on their report, let’s discuss. I am a reasonable capitalist, tell me the backstory and maybe we can work something out. If they would like to provide a personal guarantee, I can run a report that way and see if we have better results. If that comes back looking ugly as well, then we are COD.

You can soften that blow by offering to work with them COD for six months, if all goes smooth, no insufficient funds checks, credit card disputes, then we can reevaluate and try a small line of credit. The tough call here is the “not enough to love/not enough to hate” when evaluating credit-worthiness.

Consider a small line or taking things one project at a time. Secure with lien rights where you can. Give them a chance to put up or shut up. Requiring credit apps is a cleaner conversation. Straight up: we are lending you money in the form of product. Even the cashier at Target requires a completed, approved credit application if you are taking merchandise out of the store without paying up front.

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Terms quandary: Cut them off at your terms mark—that usually gets their attention if they pull that after you have opened the account. If they push back at the start of your relationship, push back with questions. Why the need for extended? Is it project-based or is that how they run their business. Is your company prepared to walk away if they stick to their guns?

Offer concessions: Increased terms may cause price adjustments (increases). Eliminate discounts and eliminate the credit card payment option to balance the extension. You gave them what they wanted, maybe not how they saw it, but you tried to accommodate.

It’s really about the cost of money. This conversation usually goes beyond the person completing the application and you will have it with several people at their company before you get it settled. At the core, what is driving the “voluntelling” of terms? I am still trying to get that “check this box” option on credit apps. Apparently when discussing credit risk, people are sensitive.

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