Here is a study done on UK businesses, which brings up issues not well addressed.
Do you know what cost of financing was for businesses 50 years ago? Near zero. To this day I recall the meeting in which it was decided we would charge our customers interest if they went over 30 days as agreed on payment. USA had gone off gold-standard lite, banks were mailing live credit cards out without an application, getting rid of all this credit to lend made (at interest) infected small business by scandalizing us into charging our customers interest. As borrowing EZ credit from banks with nearly no standards (but at interest) became on balance a preference to maintaining standards with suppliers and no interest. Where zero-usury guardrails kept many more people on the straight and narrow and within community constraints, countless people jumped the rails and crashed.
Yes, letters of credit encumbered a line of credit that was drawn upon at the point of payment, and the money drawn on that line was at interest, except... USA interest rates at anywhere from 3 to 21% never mattered since importers secured 60, 90, 120 day sight LsC, meaning the seller agreed to delay payment for that time. Yes, you escape USA interest, but you do cover, one way or another, the seller's carrying cost of your delayed payment. So what is the difference? Just about every country does the crazy EXIM Bank wealth transfer thing, and say, Japanese export interest rates are subsidized so a USA importer pays probably 1/2 the going USA rate.
There are no guardrails any longer, but one can still know what works and drive along the right road anyway. Just because there are no guardrails does not mean you must crash.
Slow pay is a problem of discipline which can be managed. The degree to which this problem is growing is the degree to which SMEs have lost the tradition of knowing their customers credit and managing the relationship.
So how to deal with this Catch 22 problem of SMEs finding less credit and what is there at higher rates? Tack into this wind! There is credit pitch perfect to your operations at zero costs if SMES simply stop using this unnecessary credit, which is degenerate anyway, and begin to extend credit, with what goes around comes around.
Yes, you'll lose customers, but the ones you have will be all the stronger. Yes, you'll lose customers, but what is that segment that you are losing costing you in interest payments necessary for the funding to carry that segment?
Will checking credit and managing payment discipline bring added costs? i don't think so, I think it would be simply a shift of resources from degenerate activity of false economy EZCredit management to the same people simply managing generative good customers.
A great master's thesis study, that.
Feel free to forward this by email to three of your friends.
When asked about the cost of credit/financing their business, 29% said the costs had increased, compared to 24% in the previous quarter. Despite this, 82% of businesses claimed they will either freeze or reduce prices in the next 6-12 months in order to remain competitive. By contrast, just 18% will raise prices.
Continuing, Hamilton said: “It is worrying that more than half of SMEs are concerned about late payments and cash flow, two issues that are intrinsically linked. Despite the ongoing media spotlight on late payments, this seems to be an issue that continues to grow without any resolution on the horizon.
“Further exacerbated with rising costs of credit and greater competition from a global marketplace, being able to find a solution to these issues could either make or break a UK business.
“SMEs are in a Catch-22 situation; they are unable to access credit to improve cash flow, inhibiting their ability to grow, which in turn further prevents their ability to access credit. It means SMEs are struggling to find funding to grow and stay competitive in the global marketplace.
Yes, letters of credit encumbered a line of credit that was drawn upon at the point of payment, and the money drawn on that line was at interest, except... USA interest rates at anywhere from 3 to 21% never mattered since importers secured 60, 90, 120 day sight LsC, meaning the seller agreed to delay payment for that time. Yes, you escape USA interest, but you do cover, one way or another, the seller's carrying cost of your delayed payment. So what is the difference? Just about every country does the crazy EXIM Bank wealth transfer thing, and say, Japanese export interest rates are subsidized so a USA importer pays probably 1/2 the going USA rate.
There are no guardrails any longer, but one can still know what works and drive along the right road anyway. Just because there are no guardrails does not mean you must crash.
Slow pay is a problem of discipline which can be managed. The degree to which this problem is growing is the degree to which SMEs have lost the tradition of knowing their customers credit and managing the relationship.
So how to deal with this Catch 22 problem of SMEs finding less credit and what is there at higher rates? Tack into this wind! There is credit pitch perfect to your operations at zero costs if SMES simply stop using this unnecessary credit, which is degenerate anyway, and begin to extend credit, with what goes around comes around.
Yes, you'll lose customers, but the ones you have will be all the stronger. Yes, you'll lose customers, but what is that segment that you are losing costing you in interest payments necessary for the funding to carry that segment?
Will checking credit and managing payment discipline bring added costs? i don't think so, I think it would be simply a shift of resources from degenerate activity of false economy EZCredit management to the same people simply managing generative good customers.
A great master's thesis study, that.
Feel free to forward this by email to three of your friends.
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