How to get credit for bigger business

Obtaining credit is an integral part of growth for most businesses

Obtaining credit is an integral part of growth for most businesses, Stephen Fenby explains the best ways to get what you’re after

Trade credit is one of the cheapest ways to fund the growth of your business. But how do suppliers look at their customers? And what can you do to maximise your trade credit?

Last month, I discussed how commercial bankers look at lending propositions and how they use the word campari as an aide-memoire. This month, I will look at trade credit, and to help I have devised my own mnemonic – cordial.

At a typical distributor, the credit control department consists of a small team of staff who will manage many thousands of accounts. By necessity, new or revised limit applications are often considered under severe time pressure and, as a consequence, there can be a tendency for ‘safe’ negative decisions to be made, particularly if inadequate information is presented.

To help speed up the credit process and maximise your chances, think cordial.

Firstly, remain calm. You may have just spent weeks or even months winning a large deal with a customer. If you now need to increase your credit limit the initial reaction may be negative. However, instead of getting angry, use the same selling skills with your distributor that you used with the customer. Identify barriers, decision makers and influencers, and work the distributor’s systems and processes.

On-time payments generate goodwill. The primary function of a credit control team is to collect all the cash owed by customers. Consequently, managing your business so that supplier payments are always made on time results in a high degree of confidence and trust.

Build rapport. Although your primary contact with a supplier will be through the sales team, if your business is growing, I would recommend spending a little time building a rapport with the credit control team. This should mean that when you ask for a higher limit, the credit controller has some background information. Also, despite what some sales people think, credit controllers can be quite human.

Deliver what you promise and don’t promise what you can’t deliver. Reliability will help to build a high degree of trust, so that when you ask for something stretching or unusual, they will trust your judgement.

Provide appropriate financial information. A significant influence on credit decisions is audited and management information. If you are applying for an increased limit, but your last set of audited accounts are overdue without good explanation, or you are unable to prepare up-to-date management accounts, the outcome is likely to be negative.

Next, you need to give advance notice. Credit controllers dislike the unexpected. If you cannot pay on time then explain why, offer an alternative date, but ensure you then deliver. If your business is expected to grow substantially, talk to them early about your credit needs. If you need a bigger limit, don’t wait until the day you want to place your order. Not only does this mean that you won’t have to bite your nails waiting for a decision, but it also tells the supplier that you have the ability to plan ahead.

Finally, leave something in. The net assets of a business are a measure of the amount invested by the shareholders. If you are asking suppliers to effectively lend you money, then they will look to see how much you have invested. Your investment provides a buffer in the business, but also gives an indication about your commitment to its longer-term development. Taking out every penny of profit as salaries or dividends does not help the impression that there is a fair balance of risk.

You may never obtain all the credit you would like, but hopefully these pointers will help you to maximise the credit available – and keep a cordial relationship along the way.