Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she's here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at [email protected]

Dear Thea,
How do you refuse credit to an applicant? I have no problem telling my sales person, but when the applicant calls and wants to know why I am not giving him credit, I panic! I mumble and stutter and it goes badly. I find myself getting defensive. Is there an easier way to do handle it?
Signed, Defensive in Des Moines

Dear Defensive;I went to buy a horse once. At first glance, I thought, "Wow, this little beauty looks good." Then I got a closer look, took him for a ride and discovered some "flaws" that made the horse not as attractive. I had to tell the very proud, very clingy owner that his little baby was not going home in my trailer.

It took some care, finesse, and honest tact to tell him that the magical connection he expected wasn’t happening for me. It was the equivalent of telling someone their kid is not going to be the next Claudia Schiffer or win an Oscar for Best Actor. There’s no easy way to say it; you just have bite the bullet and do it.

To do it right, however, is all in the approach.

Do you tell sales rep that they have to break the news, or do you call the customer yourself? Do you hope the case just slips quietly into the credit refusal file abyss? Do you dodge the customer or sidestep the answer? Or perhaps you cave in completely, say there has been tragic mishap and—surprise!—the customer actually has an open credit line with you.

The best way to handle this is to tackle it head on. If the customer calls you because the rep has shared the news or the contractor wants to find out what is taking so long, this would be the time to grab the file and address those red flags.

If it a slow or dodgy pay history, ask. Let them know what their credit history and information is saying. You can do this with tact and allow the applicant to have some dignity in the explanations. If there is bankruptcy in the history, inquire about the circumstances. Start a discussion. See where that discussion goes and what the responses are. How willing is the applicant to have this conversation with you? If you get a lot of blustering and pushback with no communication chances you are spot-on in not wanting to take a risk.

If the applicant is forthcoming and you have a conversation that leaves you with a refreshed sense of who this company is, then that may be the catalyst for taking a chance on a small line and let them earn some goodwill and trust through their actions. (And if you take the chance and they fall down right out of the gate by missing the first payment, then collect that money and send them back to the kiddie pool.)

If you have concerns about increasing a line of credit, tell them exactly what you would need or would like to get in exchange for the increase seek. Everyone has a limit. I am not aware of any other industry where people think they can get carte blanche on credit lines. Again, everyone has a limit.

Ask some questions. Is this a temporary increase for a particular job? Are they growing? What is driving this need?

Credit is not for sissies. If you are going to do this job, you have to be able to have the hard conversations. If you are prepared, you can do it on your terms and potentially save the customer.

People may not always like what you say, but they do respect that you had the courage to say it to them. Some of my favorite customers started out rough. Difficult roads often lead to beautiful destinations.