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“Small businesses can’t survive if they can’t get customers to pay bills,” says Edgar Ortiz, president and CEO of Strategic Analytic Solutions, an Atlanta-based management consulting firm, a guest columnist for the Atlanta Journal and Constitution this past weekend.
I read that, and maybe because of the recent success of the New Orleans Saints, I immediately thought of an expression I heard quite often in the three years I lived in New Orleans, “For True!”
Ortiz opines further:
Credit policy and debt-collection processes are fundamental requirements to run a profitable business.
Knowing who to approve for credit, how much credit to extend and how to collect are key responsibilities of successful business ownership.
I can almost feel heads nodding in agreement. But the reality is that most small businesses are afraid to know the truth about their customers’ credit because they are terrified to turn away potential business.
Small businesses can fail if they don’t understand the value of credit intelligence and accounts receivable and collections practices for all the reasons Ortiz outlines in his article. Kevin Kiernan, FTRANS VP of Sales, just yelled over to me from his office, “Hey, I just scheduled lunch with that Ortiz guy!” Maybe he’ll come back with some more small business wisdom.
Ortiz’ article is a must read for small business owners. For True.
Jargon helps us communicate, especially if you are in on the lingo. But sometimes it can exclude people from engaging in the conversation. I remember the first time someone mentioned to me that an event was ‘one off.’ What did that mean? Eventually, ‘one off’ became so frequently used in my business that I was able to figure out, based on context, what the expression meant.
I recently conducted an unscientific study of 11 business people – Question: If I used the expression ‘trade credit’ would you know what I meant?
If you just asked yourself what is ‘trade credit’, you are not alone. Take a look at how these successful business people responded.
For the record, trade credit is the credit you extend to your customers allowing them to pay on terms (30 to 45 days is typical).
According to an article in today’s USA Today, small businesses vital to economic recovery are increasingly going bankrupt. This is likely happening for two reasons:
1. Their customers are going bankrupt so they aren’t being paid outstanding balances
2. Capital is tied up in accounts receivable
We all know that it is virtually impossible for SMBs to receive sufficient bank loans or generate the credit necessary for their business to thrive. Even with the meager stimulus checks beginning to circulate from the federal government, the overriding issue for most SMBs is not having the cash on hand to hire more talent, pay off debt and/or take on more customers.
In fact, did you know that it currently takes a small business 56 days to get paid by its customers (probably more in today’s economy). And, according to AMI’s Q2 2009 SMB surveys, “restricted cash flow” is one of the major challenges facing SMBs both in the U.S. and around globe. As such, now more than ever, it’s essential that small business owners only partner with vendors & suppliers that are in good economic standing. Additionally, having access to the capital commonly tied up in accounts receivable should be the number one priority for small businesses, as those funds represent many businesses largest untapped resources.
If I were to offer some quick advice for small business owners, I’d strongly suggest making sure that you know why your customers buy from you, choose those customers carefully and do everything you can to generate access to all of the assets available to you – whether its government stimulus, a small bank loan or uncovering capital tied up in accounts receivable.
