What to do When You don’t have What Banks Want?
So, what you do when the bank says “no” to your request for a loan or increased credit limits? Do you pack your bags and go home or do you go back and nurse the scrapes and bruises and take a long hard look at the business, hopefully the latter. Let’s explore a few ideas.
Increase Profitability – How certain are you that you’re not leaving money on the table? A company did a study and we found that 60% of their customers contributed 4% of their revenue. We began increasing the pricing to these customers thus increasing the company margin and have yet to lose one of them. Why? Because we found that what this company provides to these customers is very unique and we were pricing well under what the market would bear.
Don’t be afraid to increase pricing. Survey your competitor pricing, estimate the value that you provide over and above your cost and set your price appropriately. Consider setting minimum order pricing and volume order pricing if you haven’t already.
Restructure your discount schedule and payment terms. Reward good behavior such as long term contracts and being easy to serve (reward the customer for taking costs out of the process). Time your customer’s payments so that you are receiving payment as you incur cost. Focus on your collections. Why should you serve as a bank to your customer? Is a slowing paying customer truly worth it? You may find that your margins are taking significant hits when you factor in the cost of money on slow paying customers.
Focus on Your Best Customers – Look at the revenue per customer and calculate the margin contribution of each. Then analyze what % of your customer’s business are you getting? Are they using another vendor for similar products or service? How can you grow you business with that customer? A company found that one of their largest customers shied away from getting both equipment and supplies from them as they felt this would put them at a credit risk in case of a slow paying project. Once we understood the issue we were able to come up with credit limits by product lines that the customer buys, taking away their concern that we would freeze their ability to do business and now this customer has doubled their total business with the company.
Focus on Your Best Products/Services – Do you really know what products and services are providing the greatest contribution to your business? Have you looked at cross selling possibilities? Once you have identified your best contributors and movers take a look at the rest of the inventory and identify the things that aren’t moving. I am amazed at the items in warehouses that have been around more than two years. If it hasn’t sold in two years at your current price why do you think it is going to in the future? Liquidate these inventories, gain the additional warehouse space, not to mention cash and buy items that will move and contribute to the bottom line.