Is it too easy to use your store as a bank?

By Peter Cox May 01, 2014 Money Matters

Have you been to the bank lately to apply for a loan?

Are you bewildered by the documents you need to fill out to obtain a credit card?

Flabbergasted that you miss dotting the I or crossing the T and the application is knocked back?

Why does this happen?

Because financial institutions have rules. And when you do use them as a bank via a credit card is it not interesting that you do not have 60 days to pay, if you’re lucky two weeks before you begin to incur interest and not at the housing loan rate!



When a tradesperson or home builder walks in to a hardware store or merchant to obtain $500 of goods, does the store have rules? Generally not.

The granting of credit takes a subservient role to making the sale. This can have dire consequences for your operation given that only a few cents out of every dollar are kept as profit.

For example, if a client cannot pay you their outstanding $500 account and you are making only 2% or 2 cents Net Profit from the sale, then you need to sell $25,000 to cover the bad debt.

With a Net Profit margin of 2%, if a debt is not paid, look how much you have to sell to cover the bad debt:

The difficulty in this highly competitive and (I consider) over-serviced industry is that $25,000 worth of sales won’t simply walk through the door tomorrow.



What’s the solution to the problem? Have a well-defined credit policy – and not one that is 500 pages long! Try building one yourself by incorporating my suggestions below.

  • Who is authorised to open accounts?
  • Who is authorised to close accounts?
  • A fully completed credit application form will be used (if you do not have one contact my website
  • That information will contain, full address details of the applicant, type of operating structure – ie company number if appropriate.
  • What is the credit limit required?
  • How they will service the account (ie past profit and loss statements and a statement of Assets and Liabilities if the credit request is sizeable)?
  • A minimum of three references.
  • A declaration under the Privacy Act to allow you to contact references and check other information available from credit agencies for a small fee.
  • Who collects the accounts?
  • What collection action is taken and when?



This policy can work for you provided all staff know about it. And note too that this policy has a target – to reduce the days debtors outstanding over the next 12 months.

Debtor days outstanding is a key performance indicator and can be calculated thus:

Total debtors ÷ Total account sales x 365

I would aim for a maximum of 55 days.

One of the reasons why it is taking so many hardware and trade stores longer than 60 days to collect their accounts at the moment is that they do not have a credit policy which simply states the rules in giving credit.

How easy is it for you to walk into a bank and get a $500 unsecured loan or credit card without filling out any documentation, credit checks and guarantees?


Peter Cox is a senior consultant for Macquarie Advisory Partnership based in Sydney. He has over a decade of experience training and consulting in the retail hardware industry. He conducts key-note addresses, and management and sales workshops, which are aimed at improving profitability and liquidity in one of Australasia’s most competitive retail environments. Phone 0061 438 712 200 or visit 

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