As a small business owner, you’re probably looking for whatever advantage you can get to grow your company’s sales. In this case, discussing small business sales planning initiatives always coincides with plans to increase your company’s market share. One of the ways to do just that is by securing business with those less than credit worthy customers. Why? Simply put, your competitors have likely turned the page on these customers and have decided to avoid them altogether. However, these bad credit customers are an excellent source of business information and the gross profit per-sale to these customers is higher than to your existing customers with credit. How is this possible?
First of all, nobody is advocating that you try and build your small business around bad credit customers. It’s simply not feasible and not the intention here. However, the purpose is to show how these poor credit customers can help improve your company’s market market share. How is this accomplished?
1. Bad Credit Customers Reduce Risk & Lower Daily Cost of Money
Customers with poor credit should always be required to prepay their orders. Prepayment on orders means your small business has access to cash before shipping, which improves your cash flow position and reducing the impact of the daily cost of capital on your business. You don’t have to finance your customer’s business waiting for them to pay their invoices. Instead, these customers are an easy sale where your small business gets paid before shipping product, and where you are ultimately able to reduce your company's risk.
You can learn more about your cost of capital by going to: Cost of Capital, Cost of Borrowing Money and Your Bottom Line
2. Bad Credit Customers Reduce Inventory Holding Costs
Because your competitors won’t pursue these accounts, you can dramatically reduce your company's inventory holding costs by reducing the amount of inventory you have to carry to service these customers. Prepaid customers understand that inventory is never likely to be held just for them. They understand the risk they pose to businesses and are therefore willing to wait for their product. The best way to approach these accounts is to insist on “made to order” business. This means every time these poor credit customers place an order, you only purchase the inventory you’re guaranteed to sell. This reduces your company’s inventory holding costs, and adds to your gross profit per-sale.
3. Bad Credit Customers Provide Essential Business Intelligence
What is the ultimate purpose of small business sales planning? Well, according to many, it’s about using business intelligence from the market, and its customers, to put plans in motion to increase market share and grow sales. Poor credit customers are an excellent source of business intelligence. They know the ins and outs of the market, which companies are struggling, and which are growing and why. Having access to this information gives your small business advanced warning of any pending issues on other customer accounts. Your small business can develop an extremely close relationship with these customers by showing your willingness to help them get back on their feet.
Granted, your small business must be able to pursue those customers with the most to offer and that typically includes the ones with a solid financial position. Bad credit customers should never be the main focus of your business. However, they are not only an excellent source of valuable business information, but they also help to reduce your company’s inventory holding costs.
Ultimately, these cusotmers help your company defeat the daily cost of money and increase its gross profit on sales. They are an easy and immediate sale and because of their position, they should be more than willing to share market information with your company. When looking to upgrade your small business sales planning initiatives, don’t forget to include those customers unable to secure credit. You may end up becoming your best customers.
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