Creditors’ Rights 26
A: A Payment Gap is the time between the delivery of a product or service and payment for that deliverable. It is the crux of a credit policy. The smaller the gap, the better the credit. The wider the gap, the longer you wait to get paid. And the wider the chasm between you and your customer.
As the Payment Gap increases, the costs of collection and maintenance may eventually exceed any benefit that can be derived. This has to do with both the cost of credit and the impact collections have on their customer relationship. Outstanding debt (or outstanding sales) costs money, a lot more than most organizations realize.
There are a lot of reasons that customers want to extend the Payment Gap. Some don’t have the money, possibly because their own credit policy has some problems. For many companies, having vendors finance their business is simply a matter of policy.
The Payment Gap brings into focus why uncontrolled credit extension isn’t good for bottom line or customer relationships. More often than not, the bigger the company, the better they understand benefits of the Payment Gap for them.
*Learn more about credit policies and the Payment Gap with Bob Bernstein’s new book, Get P.A.I.D.TM A Guide to Getting Paid Faster (and What to Do if You Don’t!) at www.getpaidsystem.com