Business Briefing

Business Briefing is a collection of business-building advice from various resources, including HR Specialist, Small Business Tax Strategies, Executive Leadership and more.

You've likely faced times, especially during cyclical sales downturns, when you need to look at selling to business customers that have less-than-stellar credit. These may be new customers or longtime customers who are suffering short-term problems.

Advice: Don't get cold feet. You can salvage the sale by offering alternative credit arrangements. Here are four optional credit strategies we've culled from credit professionals and Business Credit magazine to help you sell to customers with borderline credit:

1. Ask the business owner to sign a personal guarantee. These are potent payment enforcement tools because they put the owner's individual assets at stake. You'll face better odds of winning a personal guarantee if the customer truly needs what you're selling and has difficulty buying it from other suppliers.

2. Demand a significant down payment. To reduce your potential net loss as much as possible, ask for enough to cover at least a large chunk of your costs.

3. Request a corporate guarantee if you're selling to a small and weak unit of a healthy large company. A corporate guarantee is basically a written promise with the financial backing of the parent company. Corporations hesitate to cough up such guarantees because they don't want to put assets at risk. But don't be afraid to ask.

4. Obtain a standby letter of credit. That's less complex than the more commonly used letter of credit. A standby letter of credit guarantees that the signer, most likely a financial institution, will pay if your customer does not. Most customers choose a standby letter of credit as a last resort because it involves lawyers and reduces available lines of bank credit.

Caution: When selling volume orders of customized products (such as labels or T-shirts), offer discounts for cash upfront or payment within two weeks. Reason: Your loss risk is greater because you can't recoup any costs by reselling customized items to other customers.