Yesterday I shared my thoughts about bank credit standards. Today let's talk about what a business that needs credit should do in this environment.
A business that needs credit should do the following six steps:
1) Cash flow analysis to determine how much credit you would like to have available.
2) Conversation with your bank regarding how much credit you will have available.3) If you won’t have as much credit as you would like, re-do your cash flow analysis backwards to address the question, “With this much credit, how much can I book in orders?”
4) Don’t let your sales people take more orders than you have the working capital for. As you approach your maximum sales volume, either raise prices or tighten credit terms.
5) After you’ve hit your maximum order volume, tell prospective buyers you can only take their order if they prepay or make a substantial deposit.
6) Remember, it’s better to reject a sales order than to accept it but not deliver.
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