By the time the Great Recession was officially announced in December of 2008, most of us had known it – felt it- all too well for a while.
I keep reading daily predictions about the inevitability of another recession by 2020 latest, that recent growth in stock market is unsustainable, gas prices are up, retailers are struggling and GDP growth is slow.
What if the recession is already here? What would you do today to keep your sales going in a recession?
Adapt. Improvise. Overcome. More credit sales is the answer. I know what you are thinking, “Give more credit to customers when they may have less ability to pay? That’s crazy!”
Stay with me. I am not advising that every customer gets an unlimited amount of credit. The time is here, however, to evaluate which customers you will finance and at which terms. You will be able to grow your sales by financing customers through the recession. You must, however make sure you will get paid.
Thia week, the car dealer where I have purchased (and financed) several vehicles called me. My car is only two years old and I am very happy with it, but they called to offer me a new automobile at a very attractive rate. I am happy with my car and do not want to trade it in at this time, but it struck me that the auto dealer is attempting to move their inventory by aggressively pushing their financing. Of course, the auto dealer is a bit different in that they probably use a third party finance source, and also they have the car as collateral. So, what can you do to protect yourself if you do not have an asset to repossess?
You start with a contract. Clearly outline your credit terms – how and when you expect to be paid. Detail the consequences of non-payment, including finance charges and/or late fees. Your contract must also include a clause for the recovery of any collection costs. Offer a discount for paying early payoff. Require a personal guarantee, which pledges the personal assets of the owner if they go out of business.
Not every customer should get the same credit terms. Your best customers should get the best terms, and you should market financing to them frequently, like my auto dealer. For other customers, you might require deposit, or limit the amount of the credit they can have open at any given time.
Most importantly, manage your accounts receivables. The best planning in the world will be worthless if you do not stay on top of your aging. Contact delinquent customers. For clients aging more than 90 days – cut off credit and hire a collection agency or attorney to help get you paid.
If you are smart with your credit terms and diligent with your management, you can use financing to grow your sales in any economy.