I was nervous yesterday as I called one of the major credit card companies I use for business. I was expecting a very overworked and underpaid representative telling me there was absolutely nothing they could do for me.
Two years ago I took advantage of a two-year interest-free credit card balance transfer, that had just ended and my new interest rate was a whopping 19.99%.
I was expecting zero help from them because of the bank credit card meltdown going on. To finance all the bad credit card debt these banks have accumulated, banks have been milking their best customers to try and recover from their earlier mistakes, before the consumer credit card protection laws take effect in February, 2010.
In the past year or so, credit card-issuing banks have:
- reduced the number of accounts in the US by 11.5% or 72 million,
- lowered credit limits 26%, taking $1.2 trillion in credit off the market,
- charged additional fees 40% more often, and
- increased interest rates on average by 1.53%.
All this to offset the record-breaking losses banks have received in “uncollectible” balances, which in the past two years have sky-rocketed to one out of every ten credit card account.
This means those of us who are responsible with our debt are paying for the banks’ credit lending mistakes.
At first glance, this seems unfair. Yet, it is simply the market correcting itself. Those who got credit and shouldn’t have, can’t anymore. And those who can manage debt, are paying a higher price for it.
Is that a bad thing for entrepreneurs? Yes, and no.
“Yes”, in that for some businesses the coming months will be slow. All the more reason to innovate and be super creative (see below).
And “no” it isn’t because consumers will be much more cautious in their spending, and simplifying their lives. Generally going back to living within their means. The era of opulence is abated… for now. And hopefully for good.
Five ways to help your customers’ credit crunch:
- Issue Terms—Net 30 or 60 days. In some cases you can stretch this out a bit more. Try and get a first payment upon close of sale.
- Provide a Payment Plan—just like a credit card, with interest lower than banks would charge.
- Offer a Discount—when they pay their balance early. For example, if they are past due on $1,000, offer to settle in two payments of $375 each (for a total of $750) if they pay by the end of the year.
- Set Up Sliding-Scale Pricing—price “X” if they pay within 30 days, and price “Y” after 30 days. To ensure they choose the price “X”, make price “Y” much higher.
- Exchange Services—still can’t get them to pay up? Perhaps they can do something for your business instead. If they’ve already received your goods or service, perhaps they can “work off” the debt towards something you need.
There are many ways to help your clients. It takes being creative and having a conversation with them.
Just be careful, as this will impact your cash flow. And as you know, most businesses go out of business because their flow of cash is not properly managed.
As to my call yesterday to my credit card company, I ended up being completely surprised when my representative, Dahleen, first thanked me for being such a great customer for many years and then immediately cut my interest rate by more than half.
by Stefan Doering, Founder, BEST Coaches, Inc.