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Unlimited Alternative to Money

By: Abe WalkingBear

"Business (B2B) credit is currently 1.5 times larger than commercial bank loans: and the spread between the two has grown by nearly $100 billion since the end of 2008." from the Credit Research Foundation's Sept. 2009  report, "Economic Impact on Business Credit & AR".

In a pure barter system there must exist a coincidence of wants and or desires before a trade takes place. This  severely restricts and limits the opportunities for commerce .

Money is a medium of exchange with an established value that is accepted in return for goods and services. The dominant form of money is currency which is issued, controlled and limited by governments. An alternative to money is B2B (commercial) credit and no government printing presses or controls are required. 

Credit allows for the value of a product or service to be assessed and for profitable sales to happen based on payment at some later date. 
Credit is an intermediary used in trade to avoid the inconvenience and inefficiencies of a pure barter system.

Credit terms, i.e. IOUs, like money are a medium of exchange.

Safeguards so as to protect the value of credit extended must exist just as governments must safeguard the value of the money they print. For example at the time of this article one ZWD is worth .00000003 of 1 USD, that means that it takes about 37,410,000 ZWD to purchase the same as $1.00 US.

While the supply of money is limited  by how  much of it governments print, credit is unlimited; in fact the more of it that is created/extended  the greater is the demand created for products and services .  Credit, properly understood
and managed allows for the expanded movement of products and services and for economic growth and prosperity . Credit is a lubricant of commerce and greases the wheels of business.

Fear of loss and focus on risk management  due to a lack of knowledge on the full profit potential and on how to properly manage this unlimited medium of exchange creates bottlenecks, i.e inefficiencies that hinder the  fruitful
expansion of trade .

The Profit System of B2B Credit and A/R Management provides a proven, understandable and useable philosophy and methodology for integrating a seller's specific knowledge regarding their "Product Value at Time of Sale", their potential customers' profile and  past performance  to allow for the expansion of profitable  sales while remaining confident of payment.

The Profit Approach

Philosophy is the study of existence and truth and relies on a systematic approach and reasoned argument. So what is the truth or purpose for the use of B2B Credit in the selling of products or services?

To understand the purpose of B2B Credit we must first accept that behind the selling of products or services lies a profit motive, that is we need or desire to earn more than we expend in a business transaction. The actual process of extending credit must be driven, based on and support  this desire to earn a profit.

Beyond the cost of the product or service being sold there are fixed business expenses and other transactional costs that must be taken into consideration to ensure that indeed a profit is earned on a sale made.

Fixed expenses are also known as fixed costs and as a rule do not vary with production. Some examples of fixed costs are rent, sometimes insurance, long term equipment costs. The ability or inability to take on more business
without increasing fixed costs is a factor that must be considered in profitable credit sales.

Transactional costs are incurred in every economic exchange. These varying costs  include the cost of products, of delivering a service, sales commissions , marketing costs,  the effort of billing customers and of the taking of payments. It is important in B2B Credit sales  to consider the transactional costs that might prove significant; so as to ensure that in fact the sale being made is a profitable sale.

In B2B Credit the  costs start when a customer expresses a desire to buy based on payment at a later date. At this point of purchase efficiency dictates  that the information required to help determine if and how credit
will be extended to the customer must be gathered. Use of a traditional  credit application that the potential customer fills out and which contains standard terms and conditions of sale contributes to delays and to a sales limiting mindset.  A better tool for the gathering of customer information is a New Customer Information Form, which is completed by the selling agent  and which contains an authorization to check a customer's credit to be  signed by the
customer.

Additional costs that go with selling on credit terms are the costs of the investigation of the customer, the evaluation of the customer's profile , i.e who the customer is and how the customer does business, and evaluating the seller's  Product Value at Time of Sale. Terms and conditions of sale are then determined following the investigation of the customer past payment history and the evaluation of the customer's profile and the seller's Product Value at Time of Sale.


There is also the cost of carrying A/R (accounts receivable), i.e. the time value of money and of bad debt write offs or losses should the customer fail to pay.

Why Incur The Costs?

We have already stated that the underlying motive or purpose for an economic transaction is the need or desire to earn a profit. Specific to B2B credit sales,  credit terms are extended because:
1) Required by the customer. The customer require time after the delivery of
the purchased product or service to ensure that in fact what was desired was
received. They also require time to process the bill for payment.

2) Downline sales by the customer. The customer company requires time after
the delivery of the purchased product or service to add value to the product
or service and to make downline sales to its own customers before it can
pay. If a customer company is extending credit terms to its own customers it
may require even more time in which to receive payment before it can pay
upline suppliers.

3) Customary in the industry. Credit terms are routinely extended in the
customer's industry by competitors and are expected.

The reason why the costs associated with the extension of credit are incurred is to capture profitable sales that would otherwise be lost.

Credit is primarily a function of sale and not of accounting.


If the management of a business believes that credit is an accounting function and all about risk management the end result will be the limiting of both short and long term sales and  profitability.

DSO (days sales outstanding)  and % bad debt, i.e. the % of approved credit
dollars lost due to non-payment are and always have been measurement of
risk. Use of risk performance measurements will result in the limiting of
both short and long term sales and profitability.
The old risk management approach to Credit Management limits profitability.

Two men look through prison bars, one sees the mud the other the  stars.

The Profit System of B2B Credit Management

In the course of years of hands on work with companies across industry lines the copyrighted Profit System of B2B Credit Management has proven that  Credit properly understood and applied can and will lead to more and larger
new sales, to improved cash flow, controlled loses, greater repeat sales, elevated customer service levels and customer retention, and to the ability to identify areas of opportunity for improvement that can drive down costs
of doing business for seller and customer alike.

The proven profit philosophy and set of methodologies that make up the Profit System of B2B Credit Management turns an area of business always thought of as a cost center, as a negative, a necessary evil and as the ugly
step-child of accounting into a proactive profit center.

In Closing

Credit is essential in both short and long term sales and is also an investment in the  lifespan of the customer relationship.

Credit allows for the value of a product or service to be assessed and for profitable  sales to happen based on payment at some later date.

Properly understood and managed B2B Credit is an unlimited alternative to money and to the expanded movement of products and services and economic growth and prosperity .

The Author

In his own words

"Prior to serving as a Corporate Credit Manager I owned a small business and understood first hand the Profit Imperative.

 What I found in B2B or Commercial  Credit Management was a  mindset fixated on risk and not profit. Having seen how my own organization, our suppliers and our business customers misunderstood and underutilized the Credit and A/R Management (not collections) Function I entered the business consulting and training field in 1982.

The target audience  for my work is Business Owners, CEOs, Managing Directors, and senior business managers...the decision makers who can make improvement happen once they learn a better way."

Profit Centered Corporate Credit Management 

Developer of the copyrighted Profit System of B2B Credit Sales and A/R Management  Abe WalkingBear Sanchez has worked with many hundreds of Business Owners, CEO and senior business managers groups internationally  including at the Shakespeare Globe Theater in London. The endorsed Credit Consultant for STAFDA's 2900 members and PEI's 1600 members he was presented the Vistage Master Speaker Award for speaking to over two hundred Vistage Groups internationally.                                   

WalkingBear has authored hundreds of business articles, he is the author of ProfitCentered Credit and Collections 1999, co-author of

STAFDA's  Foundations of a Business 2007, and co-author of the new international book, The Best Kept Profit Secret: The Executive's Guide
to Transforming a Cost Center 2009.

ICM / Mexico,  Irish Institute of Credit Management, Evergreen Marketing Group,Vistage, CU, CSU, Texas A&M,
N A C M - Kansas City, HTDA, BCFM, Skinner Nurseries, Deardens, Rain Bird, STAFDA, IBM, PEI, Atradius , Chemir Analytical Services
are but a few of the groups, schools, companies and associations for whom WalkingBear has conducted programs.

WalkingBear can be reached through:
www.armg-usa.com