Forums: Discussions for entrepreneurs and small business.

Today`s business & financial news is enough to make me want to hide under a rock, but if there`s anything I`ve learned it`s that a problem is usually also a business opportunity if you play your cards right.

So here`s what I`m wondering... today`s news means that a lot of my potential new clients aren`t going to have access to lines of credit and such that they normally would use to pay me. Would it therefore be in my interest to offer some small-scale version of financing? What are the legal & insurance implications of this?

My thinking is that if I`m offering potential new clients the ability to pay in installments, it`ll give me an advantage over my competition here around town.

If you offer financing to your clients, I`d love to know your experience and whether you think it would be a good move given that the credit squeeze is about to get worse.

Thanks,
—paula

Paula,

I don`t know what your typical engagement amount is nor what you have offered as "terms" - but there is a difference between progress payments and installment payments.

If you believe that you would get more prospects if your work was "financed" (so they could make monthly installment payments) - then I`d look to align myself with someone who could provide that type of "loan".

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Dale
www.ourbestidea.com
www.maskerinsurance.com
www.maskercreations.net

I agree with daleyfla99.  Also, I went to your web page.  I could not figure out what kind of service you provided until I read the small print " ...come join us."  I would put your Rabbit Mountain page as your index page with a navigation bar to the Shoppers Guide.


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The older we get, the more excuses we make for not chasing after our dreams. But truth is, goals are attainable at any age.

Dear Rabbit-- I think you are wise to `think outside the box` and explore new avenues to business opportunities.  But let me tell you a little story, then I`ll make my point.

Many years ago in my hometown there was a pizza chain called Shakeys.  They had a sort of irreverent easy-going theme.  By the cashier, they had a sign something to this effect:  "Shakeys made a deal with the bank.  They don`t sell pizza.  We don`t accept checks"  For some reason, that made an impression on my young mind and I still remember it (we`re talking back in the 60`s), but it took me some time to realize the true meaning of that silly sign which, when you think deeply about it, really makes a lot of business sense.  Here`s my interpretation:

Shakeys was in the pizza business. Pizza was what they knew.  Pizza was the trade they chose to pursue.   Pizza was what put roofs over their heads.  On the other hand, the same was true of the bank, only in their case, substitute the word "banking" for `pizza`. 

Here`s what I think Shakey`s was trying to get across:  "If we delve into the check acceptance business, when we start having the inevitable problems like bounced checks, collections, and so forth, we`ll have to start dealing with those problems and not with pizza-related problems.  In effect, we`ll have been involuntarily taken out of the PIZZA business and forced into the banking or collection business.  We don`t want to be in the banking or collection business, that`s what the bank is for, we want to spend our time and resources in the pizza business"

Does that sound kind of silly to  you?  To me, it makes tons of sense.  When you start giving credit terms, you`ll find you`ll only spend a part, not all, of  your time in your chosen business field whatever that may be, and the rest of your time dealing with collections, receivables,
cash flow problems, and all the other issues that come with the financing business.  You presumably aren`t in the financing business, there are plenty of other people out there who ARE in the financing business who are much more knowledgable and better prepared to be in that businesss than you are.  I would very strongly suggest you keep it that way.

Here are some suggestions:

1.)  Lots of businesses sell `dealer paper`.  They make a deal with a bank or finance company
to arrange financing on the spot for their customers who desire such services.  The merchant writes out the finance agreement, gets approval from the financer, the merchant gets paid by the financer, and collecdtions are the problem of the financer, not the merchant.  The merchant  get paid when the work is done as it should be--that`s the way their business works.  The finance company get`s paid in installments and deals with any late payment or receivable issues--that`s the way THEIR business works.  You get to dedicate all of your time in your chosen business,  the finance company gets to spend their time in their chosen business, and the customer gets to pay out in installments til his heart is content.  Everybody wins!

2.)  Lots of businesses of all kinds now accept credit and debit card payment.  And lots of businesses use company credit cards routinely to pay for and, if necessary, spread out, business related purchases.  In fact, there are many Visa and MC credit cards out there specifically dedicated to business and corporate, not personal, purchasing needs.  Again, if your customer wants to spread out their payments, that`s the business the credit card issuers are in; it is NOT the business you are in or should be expected to be forced into.

Hope this helps and you understand what I`m trying to say.

AMSPCS
amspcs@juno.com

Hey all, thanks so much for your input. Currently my terms are half up front, balance on completion -- it seems most people here are against the idea of extending credit which I understand, but that still doesn`t address my dilemma... if my potential new clients are having difficulties securing credit, would offering the ability to pay over time give me a competitive advantage?

edit: nevadascul, the Shopper`s Guide is a publication of Rabbit Mountain LLC and is intended to be entirely separate.

Re your comment "if my potential new clients are having difficulties securing credit, would offering the ability to pay over time give me a competitive advantage?"

I understand what you are saying and appreciate your predicament.  Let me ask you a few questions.

1,  If your clients are having trouble securing credit, how do you think they got that way?
     Would `having poor credit because they didn`t pay lots of people they owed money to"
     be a pretty good guess?

2.  So presupposing the #1 is true, why in the world would YOU want to expose yourself
     by extending credit to people you know have a history of not paying off their debt? 
     Do you have a very good reason to feel they would treat you differently from the others
     they didn`t pay?

Not trying to be harsh or sarcastic here.  But I think you would be better off re-doing your
marketing plan to target quality clients who can pay, not credit impaired clients who can`t, won`t or whatever.. I don`t see the difference or advantage between not having any business and having lots of business but not getting paid for it. Yes, we all hate to turn down business.  But the definition of business includes `getting compensated for it".

Another idea:  Perhaps if you have to offer financing to a client of questionable credit rating, maybe you could work out some sort of secured loan deal, maybe attach their assets or inventory to the `loan`.  Where there`s a will, there`s a way.  But offering services to those to whom you have questionable expectation or leverage about the prospects of getting paid in a timely manner if at all is NOT the way.

AMSPCS

I`m not interested in extending credit to people with bad credit ratings, obviously, I`m not thinking of those people. My concern is that billions, if not trillions, of dollars have evaporated from the banking system this week and Washington Mutual may yet go down. Under these conditions, banks just simply don`t have the reserves to back up new credit and EVERYBODY will be facing credit problems in the near future, even people with perfect credit and sales commitments already on the books.

My thinking is that just because bank credit is a problem doesn`t mean there isn`t goodwill and trust between individual business owners, especially those of us who saw the housing bubble for what it was and refused to get sucked into the complex of lies. Do my transactions with my clients really need to be mediated by a bank? Is there some reason I can`t do my own credit mediation? This is what I`m trying to figure out. It kills me to think that perfectly willing and capable people can`t do business together just because the mediators screwed up.

I like Barry`s story about Shakey`s Pizza.  You would do well to think about it.

There is no reason that you can`t extend "store credit" to your customers if you are willing to walk away from bad debts.  How much money are you talking about?  I have a few outstanding invoices that will never get paid, but since the money is relatively insignificant ($20-to-50), it`s not worth the effort and bad publicity to go after them.  I ocassionally send them a reminder that I haven`t received the check yet.

If you are talking about a significant amount of money then you should have an attorney draft a loan contract for your business that would stand up in court.

But there`s no reason why you can`t, except, as Barry said, it`s not your business strength.  There should be a message in the bank`s refusal to offer a new business credit.  If they don`t see a good risk, then go back to my first question - is the amount involved tolerable for you to walk away from if the buyer can`t finish the payments?


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Steve Mann
Internet Videographer
MannMade Digital Video
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