A couple of weeks ago, an academic friend of mine invited me for a glass of coke at one of the hotels close to where I stay. The last time we met was in England some couple of years ago. So it was great time meeting him. He had lost some weight but this was not surprising given that he had been pursuing his PhD and I know how extricating studies can be that side of the sea. He called for different brands of wine—I cannot remember their names. An hour passed by so quickly and I thought it was time to go home. Suddenly, as I was about to bid farewell, another close friend of ours walked in. We embraced warmly and I was forced to re-take my seat.
The friend who had just walked in had just lost his job but we were together in college. To my surprise, the England friend kept on sipping his wine with his eyes glued to the screen and ignored the newcomer. I knew for a fact that he had seen our ‘loafing’ colleague but something must have been wrong. There was some tension and silence for a while. We all pretended we were looking at the screen.
When I could not pretend anymore, I decided to take my leave. Surprisingly, my England colleague also said he was taking his leave. He called for a whole bottle of red wine and asked for the bill. He then just went to our ‘loafing’ colleague and said loudly ‘mutiperekerako bill imeneyi akulu.’ (You will have to pay for this bill). It was a wine bottle worthy a whopping K26 000. The ‘loafing’ colleague had his mouth open in disbelief. I later discovered that this loafing colleague owed the England Colleague lots of money and was playing hide-and-seek all along. ngongole ndi satana, mbambadi! (Money can be evil).
This takes me to today’s topic. Who do you give credit to? You might as well acknowledge to yourself up front that if you extend credit, you are going to have people who will not pay you on time or even pay you at all. It’s unavoidable. No matter how keen your judgment of other people is, you cannot always identify the deadbeats. And, of course, not all people who do not pay you on time are deadbeats. Some may be unable to pay you for any number of reasons beyond their control, such as a family emergency or an unexpected downturn in their financial circumstances.
Arguably, the only foolproof way to avoid bad debts is not to offer any credit at all. However, that would not be practical for most people and businesses so you’ll have to do the next best thing, which is to take all reasonable precautions to protect yourself and to ensure that you are not extending credit to the wrong person or business. That is how banks survive actually.
Taking precautions to help you reduce the chances that you will extend credit to someone who does not pay his bills is an extremely important step for a small business owner especially. One bad debt can strain your cash flow. Just do not forget that the decision to extend credit to customers does not mean that you have to extend credit to every customer.
The precautions you take will depend upon whether the customer is an individual or a business. Essentially, you want to gather enough credit information on your customers to give you a good idea whether they are a good credit risk. Also, the information you will want to gather will be different for different types of businesses. For example, if you operate a small business that readily accepts cheques like a fuel service station, you may need to take steps other businesses do not have to take to make sure that the cheques are really guaranteed of cash because you may not be able to see your customer again. The more the probability of you as the businessman seeing your customer often, the more the chance that your customer will avoid cheating on his payment and the opposite is true.
So do not be mean—extend credit but take precautions so you don’t lose friendships in the process.
Blessed weekend to you and yours!