In cases where your customer’s credit card sales are a meaningful part of their business, it’s a good idea to request 2-3 months worth of Merchant Statements right from the start of your business relationship. This can prove to be a beneficial tool in the future. Why? Let’s break this down.
In building a foundation in your business relationship, Merchant Statements can serve as a benchmark for future investigation should the need arise. And to request them straight away is the BEST time, as your new customer is most amenable to the request.
If your customer requests an increase in credit, it’s important that you understand the reasons behind it. It could be any one of a number of things. Maybe their sales for your product increased or perhaps they are shifting their business away from a competitor. Either of those reasons qualifies as a good and valid case for granting credit. However, it could be that sales are down and a competitor has terminated their credit privileges. But how would you know? Will your customer come right out and tell you that?
Comparing Merchant Statements is one good way to begin the process of finding out what drives the need for more credit. Request the latest 2 -3 months of Merchant Statements and compare them to the ones you put on file at the beginning of your professional relationship. Decreased sales should be obvious. And naturally, if credit card sales have declined, this is a red flag and should be further investigated. Likewise, increased sales might give you that extra comfort you need to respond favorably to a credit increase.
As discussed in previous articles, when your customer gives you the cash flow excuse, comparing the current Merchant Statements to previous ones will help you validate their claims so you can decide how you want to proceed.
Have you used this strategy before? If so, was it helpful in your decision making process? Tell us what you think!