This note intends to comment on one of the points of the Article “Do you need cash? Look in the Business, ”published by Kevin Kaiser and S. David Young in the May Harvard Business Review.
The cited authors point out that one of the most common mistakes made by companies is to link the days of credit received from suppliers with the days of credit that is offered to customers. So we have that if suppliers grant 30 days of credit, a similar term is also granted to customers.
The problem arises when there is no bargaining power with the suppliers and they unilaterally decide to reduce the payment term. A situation that forces companies, in turn, to pass this reduction on to their customers.
In the current recessive situation where situations such as those described are seen every day: providers canceling lines of credit to which they were accustomed to us or reducing the credit granted to a minimum, oblige us to review this practice of linking; above all, if the only thing that unites us to our clients is credit.
If so, rest assured that an adjustment to your credit policy will mean a loss in your sales volume.
If the desire to maintain the same credit policies persists, this will involve seeking financing with third parties, with the consequent financial cost, which must be compared against the profit margin on credit sales.
In the absence of access to credit, the possibility of sacrificing margins for cash sales or making discounts for prompt payment should be analyzed.
But most importantly, you'll need to start worrying about creating a distinctive edge that appeals to your customers.
In conclusion, linking the company's credit policy with that of its suppliers is a serious mistake, which is exposed in times of recession, such as the current one. We must learn from supermarkets that pay 60 or 90 days and sell for cash.
