Every month, some customers like to talk with us about the credit payment term, so what does credit payment term mean to a company?
When it comes to the credit payment term, what it really matters to us is the cash flow management. Now before approving customers’ application for credit payment term, China-Flag-Makers will not only take full consideration of a company’s credit but also its payment history, payment habit and history transaction. Also, we will pay more attention to the industry position and profit model of a company. Whether a company, whose annual revenue is 5 million dollars with an annual growth of 15% and profit rate of 15%, is a good company or not? Financially, this is a good company. But such a company is not so good to a decision maker, as it may have counted its payment receivable into its revenue. The more the payment receivable a company has, the less cash flow a company possesses. China-Flag-Makers offers the credit payment service to customers with the aim to help them in cash flow and grow together with them.
I will review our monthly financial report together with our CFO, and one of our main tasks is to analyze our balance sheet. The balance sheet includes cash, payment receivable, inventory, fixed investment, etc.. The liabilities in the balance sheet cover the tax, loans, and account payable. Then the rest is the interest the entrepreneur gains.
Some of our customers have built cooperation relationship with us for many years and their main businesses run very well through working with us. But one day, they divert their attention from their core businesses to non-core businesses, for example, they begin to invest in property. The property is the fixed asset, when you invest on the fixed asset, your cashback period will be long, however, the payment term for the bank debt is short, that is, short-term debt for long-term investment, which will definitely lead to the insufficient of your cash flow and thus influence your business operation. The facilitation of cash flow to a company is just like the gasoline to a car. The decrease of the cash flow will result in the loss of the opportunity cost.
If you invest your cash flow in our main business and run your business with light asset strategy, you will find your main business will yield more benefits than your non-core business. China-Flag-Makers will offer credit payment service to some core customers, meanwhile, we hope our customers can manage their cash flow appropriately. One way to measure the performance of a company is its ROE. However, we can also judge a company from some other aspects. For the government, a good company is the one that employs a lot of people and pays a lot of taxes. For the bank, a good company is the one that possesses a large scale of the fixed asset. However, for an investor, a good company is the one that runs with good and differentiated business model and achieves the highest ROE.
Finally, I would like to talk something about the reason that more and more buyers come to our company and factory for a visit. Customers who come for a visit know clearly about the brand operation capacity of some Chinese companies. Some companies think that “it is not who you are but who you are regarded as that matters”. For example, if you drive a second-hand car, your image is a second-hand car owner; however, if your drive a brand new Benz, you will be regarded as a luxury car owner. It is impractical to just send emails and flyers to change customers’ recognition. Over marketing or excessive marketing won’t work anymore.
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