The 3P’s of Credit

December 23, 2019

Since the dawn of commerce, credit has been the blessing and curse of merchants. Being able to extend credit to buyers has helped to expand sales, but it has also increased risk. It takes a lot of sales to make up for that one bad apple who skips out on their obligations. In ancient times, not paying bills might mean debtors prison, or worse. 

Today, a creditors only option is limited to going to court and obtaining a judgment, with no guarantee of recovery. Today, to lower the risk of selling on credit, many private companies have accumulated information on credit seekers and have consolidated that information and now sell it to lenders so they can make intelligent decisions on who to offer credit terms too. Even then, it’s not foolproof that you will get paid. Most lenders have come up with 3 simple questions to further narrow the risk of who they may extend credit. 

They are known as the 3C’s:

  1. Credit rating
  2. Character
  3. Collateral

The famous 19th century financier JP Morgan had his own personal 3C’s, They were:

  1. Character
  2. Character
  3. Character

As you can see, deciding who to lend to can vary among lenders. As competition has intensified for sales and credit, sellers and lenders have chosen to take additional risk. For sellers and lenders choosing to look at customers or borrowers with weaker credit and character, we have the 3P’s:

  1. Will they Pay
  2. Can they Pay
  3. Can you make them Pay

If you need help understanding or issuing credit, come to a professional, AeroFund Financial, we have been providing credit and working capital since 1987.