Should we give credit to this customer?
A new customer wants to pay in sixty days. Saying yes might win the account; saying no might lose it. What a business owner actually weighs, and why the answer is often not about the customer at all.
This is the decision-lab question students find hardest, because both answers look reasonable and the information you would want is not available. A promising new customer wants credit terms. The salesperson wants to say yes. The person who has to make payroll is less sure.
Here is what an owner is thinking about while the student is deciding.
What you should come away with
- Credit is a loan; decide it the way a lender would, not the way a salesperson would
- The question is not whether they will pay, but whether you can survive if they pay late
- Find out how they pay everybody else before you find out how they pay you
- Start small; the first order tells you what the fifth will be like
- Losing a customer who will not pay on time is not a loss
The first reframe is the one that changes the whole conversation. Extending credit is lending money. When you deliver goods worth two lakh and agree to be paid in sixty days, you have lent that customer two lakh, unsecured, at no interest, and their promise to repay is the invoice. A bank would want to know a great deal before doing that. Most small businesses do it on the strength of a good meeting.
The second question is about you, not them: can you afford to be wrong? If this customer pays ninety days late, or not at all, what happens to your business? For a company with a cash reserve and many customers, a late payment is an irritation. For a company where this order is a large share of the month's revenue, it is a salary run. The same customer is a reasonable risk for one business and a reckless one for the other, and the decision depends more on your position than on their character.
The third is due diligence, which owners learn to do and students do not think to. How does this company pay its other suppliers? You can ask — suppliers talk to each other, and a company that is slow with everyone is not going to be fast with you. How long has it existed? Who owns it? Does it have the kind of customers that pay it on time, so that it can pay you? Is the person promising sixty days the person who authorises payments, or a salesperson on their side making a promise on behalf of a finance department they have never met?
The fourth is structure, because the choice is not simply yes or no. You can say yes to a smaller first order, at shorter terms, and extend as they prove out. You can ask for part payment in advance. You can offer a small discount for payment on delivery and see whether they take it, which tells you something about their cash position. You can put a credit limit on the account so that a late payment stops further supply automatically, rather than leaving you to have that conversation. Owners describe learning every one of these after a loss they could have avoided.
The fifth is the hardest for students and the clearest for owners: a customer who will not pay on time is not worth having, however large the order. Founders describe the account they were thrilled to win that consumed a year of chasing and ended in a write-off, and the smaller customers who paid on the day and kept the business alive. Revenue you cannot collect is not revenue. It is work you did for free, plus the cost of financing it.
So the answer is rarely a flat yes or no. It is: yes, to this much, on these terms, after these checks, and we will see how the first invoice goes. That is not caution for its own sake. It is what lending money responsibly looks like, and it is what this decision actually is.