When the economy goes south, many companies tighten up on credit approval, causing them to lose both new and existing customers. There is, however, a way to use credit to retain current customers and gain new ones. To accomplish these outcomes, says Vistage speaker Abe Sanchez, find ways to say “yes” while remaining confident of payment.
“An economic slowdown is not the time to downsize customers,” asserts Sanchez. “As markets get tight, competition gets tighter. Instead of turning away customers, you need to be looking for ways to accommodate them. In particular, focus on increasing the amount of customer service and value you deliver so your customers don’t go someplace else.
- Keep your best customers. To keep customers from turning to your competition, focus on providing more value. Value consists of more than price; it also includes the total cost of doing business with you. In order to lower that cost, find out how your customers do business, so you can get it right the first time.
- Reach out to new customers. Find ways to accept new customers you would normally turn away. This doesn’t mean extending credit to anyone who walks through the door. But if you can reach an agreement with a new customer that allows you to minimize risk and remain confident of payment, there’s no reason not to extend credit.
Use product value to make credit decisions. “For your ‘A’ customers, consider offering additional terms, such as discounts, says Sanchez. For your ‘B’ and ‘C’ customers (and everyone else), search for ways to say ‘yes’ while minimizing the risk. Explore joint payment agreements and other techniques that allow you to take on new credit business while remaining confident of payment. Use your credit process to help maximize sales, not drive customers to the competition.”
When the economy slows down, companies build up unused capacity. At the same time, they start turning away risky credit customers, only adding to the already existing problem. For some, the solution lies in extending more credit and taking on more business in order to reduce the unused capacity.