Thursday, September 4, 2014

AN INTRODUCTION TO THE GAME OF CREDIT

AN INTRODUCTION TO THE GAME OF CREDIT



by Eric Shaw

Welcome to the Game of Credit, in which every carefully considered move around the game board can spell business success or failure.

In the credit game, there's no doubt that how you play determines whether you win or lose. If you don't play correctly or if you don't understand the rules, if you don't use the right tools or if you don't hire the right people, you can't win, which means that what you lose is your business.

Let's be honest--you go into business for yourself for two primary causes--one is personal, the other is to make a profit. To accomplish the latter, you must implement an efficient management system that will yield a positive cash flow--that's your highest priority.

But what is it that maximizes your accounts receivable collateral, which you'll need to do in order to borrow, and increases your cash flow? It's the rules, policies and standards you put in place in your business! Those rules are part of the Game of Credit, and following them will lower the turnover rate of your receivables, reduce your bad debt, and limit your risk.

The Game of Credit teaches business owners how to "think like a lender" in order to maximize the value of their accounts receivable collateral and improve cash flow.

Remember: The rewards of success are many; so are the consequences of failure.

Scoring a Win in the Game of Credit: Put Your Game Piece on START



The old adage, "It's not whether you win or lose, but how you play the game," may be all right for sports, but in the credit game there is no doubt that how you play the game determines whether you win or lose.

As you go around the board playing the Game of Credit, you'll notice that more questions are raised and more answers suggested. You'll also see how when it comes to your business, dealing with credit and collections is like death and taxes--they're inevitable.

But before you begin, you must make an honest assessment of your situation. Do you have a business plan? A business plan is a written statement that outlines the goals of your business and the strategies needed to help you achieve those goals.

To formulate your business plan, you need to take stock of your company's strengths, weaknesses, goals, capabilities and resources. These assessments must be completed before you can begin to formulate the strategy that will enable you to win at the Game of Credit.

The following questions will get you started as you gather the information you need to evaluate your company's situation.

What leverage does your product have in the marketplace? If your product faces strong competition or if supply exceeds demand, the credit policies required are much different from those needed in a situation in which your product has less competition and more leverage.

Do you understand the relationship between credit policies and sales or between credit policies and cash flow? Do you understand the requirements of your lender? (Don't forget the Golden Rule: The one with the gold makes the rules.)

Do you have the right personnel? Do you communicate your needs and desires to them? Often, one of the truest barometers of business disaster lies in the lack of communication between the credit department and the sales staff. Do you provide them with the appropriate training and the correct tools they need to create and implement the best policies?

Are all of your employees, not just your management personnel, aware of your business plan--your goals and the strategies you intend to implement to achieve those goals? Your plans can only be followed through on successfully if your personnel are as committed as you are to your company's success.

Once you've asked yourself the appropriate questions, you then must assimilate that information into your company strategy. Formulate what changes must be made, decide what areas of your business need strengthening and then implement all your plans to increase cash flow through better credit management.

However, these are only a few of the elements that make up the Game of Credit. That's why it's imperative that the rules of the game be utilized at all times. If you don't learn the rules and acknowledge their usefulness, your bad debt will increase. Bankers and financial institutions won't give your company any consideration when you need to borrow, because your bad debt will reflect bad management and make your company a bad risk.

This can be a challenging game, but one that can be played well and, in fact, must be played well in order to win.

For more information about how to effectively manage your credit and collections departments, call New York Credit at (310) 827-0076.
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