Bad debt deals

BY MATTHEW D. MOHR

Businesses use financing through accounts receivable and loans. All loans and credit allowed on account are entered into with the expectation of full repayment when due. Unfortunately, sometimes financing is not repaid. Extending credit involves the risk of not being paid. Bankers face this challenge nearly every day as loans granted turn sour or become uncollectable. Most good credit analysts look at repayment histories as well as the assets and liabilities of the borrower.

When dealing with direct customers or on a more local and regional basis, the best credit managers go beyond numbers and work hard to assess the individual’s “credit repayment character.” A person or business which chooses not to repay money owed once is much more likely not to repay a future obligation. Similarly, businesses that constantly argue about charges or find excuses to pay less than amounts due are often those who ultimately fail to repay their obligations in full.

Our media is filled with articles and information about having a good personal credit score, but businesses also want to build a good credit reputation. Credit rating agencies assign credit scores to businesses to help others make decisions about extending credit to a particular enterprise. Once again, while dealing directly with a business locally or regionally, knowing the reputation of the individual owner and the people involved makes a huge difference in the decision to extend them credit.

Individuals and businesses do build repayment reputations. Over the years, most credit managers get to know who the “deadbeats” are and will refuse to lend or sell to certain customers because of poor repayment history. When a person decides to not pay his/her bills in one circumstance, and then moves on elsewhere, chances are they might not pay when things get tough in their new endeavor either.

A good credit history is something to build as an individual and as a business enterprise. PB

Matthew D. Mohr CEO, Dacotah Paper Co. mmohr@dacotahpaper.com