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To Extend or Not to Extend Credit

Working with your sales team can have its rewards. Let’s say that you or your sales team is meeting with a client that really wants to do business with you and you have realized that based on your credit & collections policy the client does not meet the criteria (benchmarks) for extending credit. Do not deviate from the criteria established. In other words do not look at this client and say he is a “Good Guy” or “She is hot”.

Once you have decided to extend credit, the next question is how much, which is really a straight up question. Do not be afraid to deny, limit or be creative with the amount of credit you extend. As we have seen, the largest Corporations can go bankrupt. Instead of extending them credit for $10,000K which they applied for, maybe you get creative and offer something like this:

*Example: Extend credit for $5,000 with a 50% buffer meaning get $2,500.00 up front
*Example: Extend credit for $5,000 with $0 up front and they maintain 50% of the credit available for 30-60 days prior to increasing their limit.

Contacting the banks
For decisions that involve a significant amount of money more work is in order. When calling the clients bank here are a couple of questions that you can ask:
- What is the average balance in the account?
- How long have the accounts been open?
- Does the business have a line of credit?
- How does the business seem to be performing now?

Just because you ask does not mean that you will receive on the first phone call. Maybe it takes several phone calls before you get the answers to the questions. What has worked for me in the past is being creative. Call the bank and tell them you would like to verify funds on a large check from XYZ Corporation before processing the check – immediately say “here is the account number” you don’t give them a chance to respond and say “No” but if that happens call another branch.

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