I think it is a serious tragedy that small business in Bend (probably everywhere, I've only seen Bend do it first hand) are forced through common custom to provide lines of credit to one another.
I'm not sure how many people are aware of this, but if you do business to business business, you have to invoice the client, and then give them 30 days to pay you.
This doesn't sound so bad, but to be strictly accurate you are extending a line of credit when you do this.
Your service is rendered, and in most cases irretrievable. Your options should the client pay late, or not at all, are very limited.. so most deadbeats end up getting written off, and most late-payers end up getting praised. Their credit is not affected by the fact that they have bad credit, and your books get ruined.
Worse still, if someone pays you religiously on time for a decade there is zero positive reflection on their credit.
Extending credit is a service. A service with risks, overheads, a service that requires expertise.
It is a BUSINESS.
Small businesses shoud not have to engineer their own websites: they may pay experts to do so for them. They should not have to repair their own vehicles - again, proffesionals can do this for you.
They should not have to extend lines of credit.
Where are the experts who will extend credit for you?
It stands to reason to me that Banks and Credit Unions extend credit to people and to businesses. It is just one of the things that they do.
So, why can they not extend credit on behalf of small businesses?
Imagine this scenario: You are a small business. You sign up for an account with Superfied Credit Union. As part of the service related to this account, you proxy all of your financial dealings with most of your clients. When you render and invoice to any of your clients, the Credit Union pays you — perhaps minus a service fee, like 6% or something — the whole of the invoice immediately. The Credit Union then proxy-bills your client. The Credit Union levies financing charges if they pay late. The Credit Union collects the debt, or sells the debt if the client never pays. The Credit Union runs background checks on clients when their accounts with you are created, and determines their credit limit. Clients who don't pay get their credit damaged immediately and consistantly. Clients who do pay build their credit just as fluidly.
Your accounting books remain in perfect harmony with your cash flow for all eternity. You look like a gem to venture capitolists and financiers.
Many of the businesses you do business with would probably be using similar services too.
The credit union could easily make a mint while enforcing and fostering public trust and seriously bolstering the local economy.
No, I do not want to start such a credit union, I don't know the first thing about credit or being in union with anything. I just want someone else to do it so I can sign up; and so that my employers don't have to worry about how they will pay me at the end of the month. A> their cash flow will be pristine, B> if things get dodgy I could always proxy them through the credit union.
Posted by jesse at June 30, 2004 01:44 AMThat's pretty neat, a great idea. Except...If your a sub-contractor and you pay when you get paid, most of the time so do they, especially in this economy.
If you have someone else (credit unions) doing your collecting for you and they're not getting paid either (General contractors) then your relationships with them will get spoiled because your too difficult to deal with. Therefor ruining your return business.
I'm a sub and it's just a thought, but I like the idea. If it could be smoothed out I would be interested.
Hmm, I'm not sure I follow your concerns?
If a credit union handles your accounts for you, and pays you the full amount minus a commission for (nearly) every invoice you issue to your customers immediately after you issue the invoices, then you, as a business, have cash in hand sooner in all cases than if you did things the normal way.
If you have people to pay, contracters and the like, they will be paid like clockwork and they will love doing business with you. This isn't like taking a bad account to collections, where you only get the money when collections pries it away from the deadbeat, this is giving a good account a loan, and using the loan yourself (and helping to reduce the number of bad eggs doing business with you in the first place through better pre-screening).
Are you talking about your clients getting frustrated by being held to a higher standard, like that of a credit union/bank, and not wanting to deal with you? For one thing, there would be nothing preventing you from doing business with some clients the old way and some clients the new way. For instance, if you know a particular client well, you can keep your own account for them, net365 or whatever, and then of course you take the risk on that account.
But you shouldn't have to extend every tom dick and harry that courtesy. A huge percentage of random companies you deal with will abuse the credit you lend them. They will also get away with it, since you probably won't degrade their credit record.
So if you cannot personally vouch for someone's credit, and the CU can't professionally do so, then I would say that person is quite a risk. The worst they could do is take their business to your competition, who ends up unintentionally giving them a free service. So who doesn't want to see the competition dragged down by bad clients? :)
Posted by: Jesse Thompson at August 24, 2004 12:43 PM