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An article recently featured at Wall Street Journal online examined the vicious cycle that exists when a customer has a hard time paying its supplier, making it more difficult for that supplier to pay its suppliers, and so on. When that happens, should businesses impose tougher terms on their customers to get them to pay up, or should they let them slide?
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According to the WSJ piece, the longer the problem persists, the harder it could be for a company to repair credit, maintain strong business relationships and in the end, grow.
Businesses continue to be challenged on the accounts receivable front, even as the economy recovers.
Lines of credit were cut over the past few years, and small businesses in particular are still clawing their way back from the credit crunch in 2008 and 2009. There's also an element of uncertainty in demand, and how much to invest to meet it. In the year-end economic report from the National Small Business Administration, nearly one-third of small businesses say capital is still a problem. As an indicator of improving credit conditions however, small businesses using credit cards for financing has dropped from 49 percent of respondents in December 2008 down to a third of respondents in the most recent survey.
In the MDM article Trade Credit Grows in Importance, Abe WalkingBear Sanchez said past-due accounts usually fall into one of three categories:
In a blog back when conditions were only starting to improve, MDM Associate Editor Jenel Stelton-Holtmeier highlighted some simple tips to increase your chances of getting paid sooner:
Read Trade Credit Grows in Importance for perspective on how to balance risk and opportunity with your accounts receivable strategy.