Velvet Glove, Iron Fist

How to make easy credit work

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Generosity with credit can make customers loyal for life, but the strategy has an obvious downside. Giving credit to the unworthy may result in bills that never get paid. Mindful of this, Albany Ladder Co. set out to protect itself from its own willingness to lend. The managers there have developed four basic rules that enable them to make loans to companies or individuals that normally would be considered bad risks.

Help the customer.

The better your customer does, of course, the more likely he is to pay his bills. To help hold down a patron's insurance premiums, Albany Ladder runs seminars on the safest ways to operate the equipment it rents and sells. It also holds bill-collection workshops to teach customers how they can collect their overdue receipts -- in the fond hope that Albany Ladder won't then have to collect any of its own.

Shift the risk.

First, try to get someone else -- a bank or finance company -- to finance your customer's purchase. Establish relationships with such lenders, and help customers apply, cutting as much red tape as you can. If you must make the loan yourself, make sure the borrower has a strong reason for paying you back. Albany Ladder's approaches range from requiring a cosigner on installment sales to taking a legal interest in a customer's receivables to requiring borrowers to sign personal guarantees.

Make it cost to be late.

Unless you want to be in the financing business, you have to be strict. At Albany Ladder, customers who pay late pay dearly. The company charges 2% per month interest on overdue installments. And if payments are rescheduled, Albany Ladder will be sure to work the deal to its benefit.

When it's time, collect.

A necessary adjunct to generous giving is tough collecting. "We take a very aggressive stance on past-due bills," says James K. Ullery, Albany Ladder's credit manager. "We start calling on the 31st day." Of course, diligent tracking systems in the receivables department are a prerequisite.