Using Cash Wisely

This holiday season, consumers are watching their credit cards like hawks and turning to the old tried and true cash for transactions. In many ways, this seems to be a very significant economic event unfolding without much commentary. Think of the implications -

Credit cards became popular years ago when the interest you paid on them was tax deductible. Tax laws changed and the interest was no longer deductible but by then, people were hooked. Like an addictive drug, credit allows you to enjoy the future fruits of your labor now....

For businesses, credit is an important lifeline that helps companies manage cash flow. However consumer credit often just allows people to buy things they can't really afford. Granted, used appropriately, a credit card can be a free 30 day loan from the bank. But most folks don't use it that way and it instead becomes an expensive addiction.

So, if consumers are permanently dialing back their use of credit - how will this impact your business? If your company sells high ticket consumer items, you probably have already taken the hit, but it might continue to hamper you unless you get creative.

If your company sells less expensive consumer items, you've likely already seen the shift to debit cards, cash and (gasp) old fashioned paper checks.

Remember as we go into 2010 that cash is king and you should find ways to enable your customers to do business with you without requiring credit cards.

On the flip side, if you're a small business looking for funds, credit cards are one of the most available but currently the most expensive options for cash. Instead, see if you can work with your vendors in new and creative ways. One new start up company I know about simply asked if they could pay their vendor net 14 instead of net 7. Having 8 months of solid payment history, the company granted them net 14. That helped their cash flow enough that they were able to eek by without credit cards or other borrowing.

So, find ways to cooperate with your vendors, your suppliers, your landlord, your customers and if you look for win-win arrangements, you're more likely get what you need and help someone else at the same time.

Hang in there - 2010 looks to be a better year than 2009 for business all the way around.