This week I’d like to share some helpful credit advice from my colleague, Bob Paul, at Chicago SCORE.
“Revise your credit policy now to avoid problems associated with extending credit later” says SCORE counselor Bob Paul. (He was vice president of credit and collections at John Deere for a multi-billion portfolio of loans to businesses and individuals.) Here are his 4 keys to extending credit.
1) Avoid extending credit if possible. Get paid on delivery, in advance, or at specified milestones during a project. Accept credit card payments where possible. Extend credit only if it is demanded in your industry. Providing credit to your customers eats up your cash and costs you money in terms of added expenses and a higher level of debt. Be sure you are appropriately compensated either through interest collected or through your pricing strategy.
2) Develop a credit policy which defines procedures to approve credit and authority levels within your organization. The rules may vary for granting larger credit amounts. The procedures may include requesting and reviewing the customer’s prior years tax returns, historical balance sheets and income statements, credit references, and credit reporting agency data. Higher levels of credit require greater scrutiny. Know how to evaluate creditworthiness. Be aware of all credit extension laws that are applicable to you and your customers. Follow them carefully. Failure to do so may result in you losing your claim to the account (and you may also be liable for punitive damages).
At SCORE we love mentoring our clients, but on a bus? Yes and no. I was on a shuttle bus going from the airport to a conference hotel when the woman next to me started talking about her business concerns. I starting asking her probing questions to help her think through what she was saying and suddenly a light bulb went on and she thanked me for my help. This I call short term mentoring.
There are many kinds of mentoring situations, but we often just think about the long term formal mentoring situation. Sometimes we just need a mentor for the moment as in my example above, sometimes we need long term mentoring (which is my favorite kind of SCORE client mentoring) and sometimes we need a secondary mentor. Example: At SCORE I often get clients with marketing or franchising needs, but as we work through their business concerns, the financial portion of the business plan always pops up. This is where we call in what I call a secondary mentor. Someone with a financial background.
As a business owner, your job is to find good mentors — someone who has been there done that and sometimes just talking things through with another person solves the problem. A good mentor keeps you on a positive track both mentally and businessly. (Yes, I know there is no such word as businesssly, but can you think of a better substitute?)
Isn’t it fun to be a mentoree after you have been mentored? We are constantly on both sides of the mentoring fence as we change and grow. What mentoring experiences have you had? I hope to see you on my next bus trip.