Two years ago, I bought a new car that replaced my 2004 Toyota Camry with over 530,000 miles (it was a good day at the Toyota plant)! It has all the latest technology that didn’t exist when my Camry was built: Bluetooth, backup camera, blind spot warning and many others.
After buying the new car, I realized that I was so captivated by the technology that I didn’t even know what size engine or transmission it had! My focus was entirely on all the cool things I could do with the electronics.
Then it hit me… the engine, transmission or suspension of my car wasn’t exciting. On the car lot, I never crawled under the car to marvel at the front suspension, but I did want to have the bluetooth connection to my iPhone demonstrated! To be fair, the gadgets do make driving easier and less tiring but without the suspension, I couldn’t get out of the driveway!
Credit in a business is a lot like the suspension in a car. It’s very necessary but not sexy or exciting (sorry to all you credit people!). A business won’t “get out of the driveway” without it.
Is credit the bluetooth or suspension in your business?
Why is credit important to a business like the “suspension”?
Unless a business is a fast food restaurant or consumer retailer, it doesn’t make a sale without giving the customer credit. We tend to overlook this basic necessity but without it, there would be no business.
Trade Credit: An arrangement to buy goods or services on account, that is, without making immediate cash payment. Entrepreneur.com
In a perfect world, every business would be paid as soon as the product or service is delivered. The reality however is that the customer’s cash flow is dependent on having payment terms and the global economy is built around the extension of credit.
Credit becomes a competitive advantage in certain industries as businesses use it to differentiate themselves and win sales by offering more flexible credit like extended terms or installment payments. This makes it easier for their customers to buy from them instead of someone else.
Why isn’t credit exciting like Bluetooth?
Credit in a business is like the suspension in my new car… critically important but not very sexy or exciting. Why? What subjects get more attention? What are the “bluetooth” – like projects that capture attention and focus? Usually it’s everything that appeals to our sense of gain. The areas of our business that make profit and grow revenue; that solve a problem with the latest app on our phones. Things like:
- sales and marketing
- the latest software platform
- cool business tools
These all get more attention than credit and yet, there’s no need for any of these unless credit is given to your customers. Remove the credit function and see how fast sales drop.
Also, credit carries risk and we all like to avoid risk. By avoid, I mean “pretend it’s not there”. If your credit process is too conservative you lose sales. If it’s too lenient, your bad debt increases and your cash flow slows to a trickle.
The bottom line is that its more fun to leave credit in the “boiler room” basement of the building while the more fun stuff is front and center.
The implications are real
It’s OK for “Bluetooth” to be more exciting than the “suspension” in your business. Just be sure to pay attention to the “suspension” too! Credit drives sales and cash flow. Without those, you don’t have a business.
Next time you’re admiring your Bluetooth connected device, think about that front suspension that keeps your car moving down the road! Contact me to learn how to turn your “suspension” into something that’s more like Bluetooth in your business!
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