December 19, 2008
Is The Credit Crisis Costing Your Business Revenue?
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You might have heard that many of the credit card companies and the home mortgage companies are reducing the lines of their many millions of customers. Millions of credit reduction letters are going out from all manners of companies.
Well, I got such a letter this week. Chevron Oil Company, using their subsidiary finance company, FleetCor, sent me a letter saying that my corporate account was going to have its limit reduced by 77%. It also said that I must submit a deposit or a personal financial statement with a personal guarantee in order to keep the card; otherwise the account would terminate, effective immediately.
I've been a customer of Chevron for almost 15 years and have had a corporate account with them for that many years. My account is in good standing. And I always pay my bills on time, so the issue is not related to my performance as a customer. The letter was generated by a computer and was sent out, in bulk, to a large number of their customers as Chevron tries to deal with the credit crisis.
I called the 800 number that the form letter directed me to and I spoke to a customer service representative, who was polite but clearly had no authority to make any adjustment to address the situation. I told the woman that I would be happy to sign a personal guarantee to keep the card because there are times when the Chevron card is very important to me. I also indicated that I wanted the limit to be set at the higher number where it had been for the last many years.
She came back to me and said that that would not be possible unless I posted a deposit in the amount that I wanted the credit limit to be. She further said that once I signed the personal guarantee, they would run my personal credit and make a further determination about the amount of credit that I would be allocated — which could be higher or lower than the amount offered in the letter.
So not only did I have to submit a financial statement and a personal guarantee, but they want to see my credit score and then they'll determine whether I even get to keep the 23% of the credit limit that remains for my account. I asked the woman what would happen if I declined to do anything and she said that effective the date of the letter, my account will close.
I told the woman that my business, obviously, is not that important to Chevron. And, of course, I'm just one of a million business accounts. But there's an important lesson here: the credit crisis, in and of itself, is reducing business revenue by reducing the number of customers that companies have.
My account will close in a day or two and it will be gone from Chevron forever, and I probably won't shop at Chevron ever again. But the people who work for me and the other people who carry the cards that I have on my corporate account won't buy gas and supplies there anymore either. We're all going to move the business to one of the other major oil companies. It doesn't matter that much to us because gasoline is a commodity that we can buy anywhere. But imagine the impact, in the end, on Chevron, and all the other companies that are taking such actions.
I'm moving my business to a more customer-friendly company because Chevron refused to honor the solid credit relationship that I've had with them for the last 15 years. Some credit officer has made a decision that is going to dramatically affect the business revenue that the company derives. Credit officers all over the country making decisions which are dramatically reducing the amount of business revenue that are driven by these companies.
Do you see why we are in a deflationary environment? This explains at least part of what causes a contraction in the economy.
So consider if the credit crisis is costing your business revenue. Keep your eyes open and pay attention: is business revenue going down?
What steps can you take from keep your business revenue from going down?
1. Evaluate your customers on a one-by-one basis. Don't treat them as commodities and treat them with the respect that they deserve.
2. Learn more about the issuance of credit. Call us if you need help with this.
3. Don't panic and make decisions that you will regret.
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About Joel G. Block
Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses. Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details. Also, be sure to check out our newest project: a blog to organize the blogs that cover entrepreneurship: http://www.entrepreneur-hub.com
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Comments on Is The Credit Crisis Costing Your Business Revenue? »
Companies are run by people. Many otherwise intelligent people have very little common sense. Chevron is destroying its own business. Other companies are destroying their own businesses in similar ways.
We expect large companies to show us leadership. What they are showing is weakness and stupidity. Where are the leaders?
The banks and the finance companies are sucking up taxpayer money and they are not circulating it. If they don't circulate the money, the system doesn't work.
The government has also lost its ability to lead. It is handing out the precious money, demanding nothing in return. Hope is not a strategy, but that is the game they are playing.
They are behaving as though their plan is to destroy everything we stand for. They are doing a fine job of it.
American Express recently capped my card after 14 years as a loyal customer. That's 168+ months of never being late with paying off the balance. I use it for a lot of business expenses each month but I am in the process of reorganizing and will CANCEL that card as soon as possible. I am also discontinuing accepting it as a merchant.
Nice, post, Joel. I suspect that a substantial driver of your incredible (no pun intended) experience stems from our outsourcing, services-rebranding marketplace. You know that I am a corporate finance, governance and contract attorney, so have done a bit of due diligence here because it illustrates broader lessons for all of us…..
I don’t know the legal terms in those contracts regarding what party bears the ultimate risk of credit defaults by cardholders and who has the right to reduce or terminate the credit of a card holder. FleetCor has written that it provides “receivables management” but because it “owns and operates” Chevron’s cards, it seems most likely that FleetCor, not Chevron, bears the risk of cardholder default and had the power to decide to reduce the credit risk exposure. It is also possible that the parties have a loss-sharing or indemnity contract. And perhaps FleetCor’s investors, including Bain Capital, Advent International and Summit Partners, have the contractual right or voting power to cause the card issuer to reduce credit lines. What we can most safely surmise is that FleetCor is probably not as concerned as Chevron with any resultant negative impact on the 15 years of your goodwill established by Chevron.
Because we own our reputations, we need to guard them closely. We need to think through and properly document our business relationships and understand that higher leverage usually means higher risk. Each party, or even departments within a party, will have differing risk/reward profiles and impacts. The takeaway is that when a business outsources a function then it courts SOME trouble and when it allows a business “partner” to use a valued brand to label the partner’s services then the brand owner faces BIG trouble.
http://www.fleetcor.com/Milestones.aspx
http://www.fleetcor.com/20070830Chevron.aspx
https://www.chevrontexacocards.com/dualcardimages/generic/chevron/en/landing_compare.html
http://www.chevrontexacobusinesscard.com/
http://www.linkedin.com/companies/fleetcor
Joel,
Thank you for this one. It is beyond belief that in this time and age copanies are still dumb and foolish when it
just comes to long time customers. For someone that has been with a company for 15+ yrs the absurdity of throwing
away a customer is no reason we as a country are in this
economic mess. I do not have much empathy for any of the
big Oil companies.
Foolish business practice indeed. Thanks again.
Great article Joel! Amazing how some companies dont consider they clients at all when they make stupid decisions
Happy Holidays!
Great content and insight Joel. It is amazing that companies like Chevron are so immensely short sighted. Your insights should help a lot for people be wiser in their approach to credit.