You Want a Credit Policy Built of Brick

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You want a credit policy built of brick

We can all learn something about credit management from a well-known fairy tale. The characters are different, but the principles are the same.

Once upon a time there were three credit managers. They were in business, and all paid their bills in a timely manner. The first credit manager had a credit policy built from straw. It was flexible and it would bend with the prevailing winds--but ad revenues were high.

The second credit manager had a credit policy built from sticks. Advertising pages were up and everyone felt secure with increasing profits.

The third credit manager had a credit policy built from brick. It was constructed in such a way as to survive any contingency, thereby maximizing profits and minimizing bad debts--even though profits were plentiful in those days.

Suddenly, the dark clouds of recession covered the land. With smaller profits and a weakening dollar, sales were hard to come by. In order to generate more life-sustaining sales, the door was opened for a hoard of debtors, led by the Big Bad Debtor.

The Big Bad Debtor came across the credit policy made of straw. He said, "Deny me credit and I'll huff and puff and I'll blow your credit policy away." The credit manager denied the ads. But because there was no cohesive policy to shield him from the Big Bad Debtor, the ads ran--with the expectation that the magazine would be paid, eventually.

Seizing the opportunity, the hoard pushed their way into the publication for a schedule of ads for which they never paid. And because the magazine no longer received the cashflow necessary to remain in business, it folded.

The Big Bad Debtor next came across the credit policy made of sticks. He said, "Deny me credit and I'll huff and puff and I'll blow your credit policy away." The credit manager denied the ads, …