Archive for the ‘Business Credit’ Category

Is Business-to-Business Credit finished?

February 25, 2009

Up to early 2009 the generally accepted method of conducting a business-to-business transaction was for the seller to allow the purchaser 30 days or more of credit to pay the account.

Now the question that is being asked by the seller is “Can I trust the purchaser to pay me?”

Up to now most of these credit accounts have been funded by the use of overdrafts from the banks. However, with the drying up of these funds a business needs to look very carefully at extending credit to anyone. When you look at the number of very large organisations that have folded in the last year with enormous debts, not much has been reported about the creditors to these failures. How many of these have also gone under?

By giving credit to the buyer, the seller is taking all the risk. The seller is assuming, no – hoping, that they will be getting paid. If they don’t get paid, then they fail. This is a disaster not of their making.

How can they change it? The most obvious answer is to remove credit facilities and require the buyer to pay for the service or product before delivery or at delivery. This is how business used to be transacted in the past.

As we look at our increasing overdrafts and wonder when we are going to get some money from our debtors it makes sense that we as a business stop offering credit. After all, isn’t the present world economic problems caused by excessive use of credit?

What do you think? Is business-to-business credit finished?