CompareUdhaar
Give udhaar to shops or only to households?
A household pays from a wage you can name. A business pays from money it is still owed. Two risks, two limits, two clearing days, and the rules for each.
Households are the safer credit and businesses are the bigger one. A household pays from a wage you can name; a business pays from money it is still waiting for. If you give credit to both, give them different limits, different clearing days and different questions, because they fail in completely different ways.
Two customers, one sentence
Two people ask you to open a khata in the same week.
The first is Bushra from the lane behind your shop. She buys groceries for a family of six, roughly Rs 900 a week, and her husband is paid on a fixed day. If she owes Rs 3,000 and stops paying, you have lost Rs 3,000 and you know where she lives.
The second is a man who runs a small tea stall three streets away. He wants sugar, tea, milk powder and biscuits, roughly Rs 9,000 a week, and he will settle when his own money comes in. He is polite, he buys ten times what Bushra buys, and his account will be your third largest within two months.
Both said the same sentence. They are not the same decision, and treating them the same is how a shop with good customers still ends up in trouble.
What a household khata actually is
A household account has a shape that almost never changes, and once you know the shape you can price your risk in it.
The amounts are small and the buying is steady. The money comes from a wage or a small income, so there is a day in the month when payment is possible and days when it is not. The buying is for consumption, so it does not stop when money is short, it simply moves onto the khata, which is exactly why household credit grows quietly rather than suddenly.
The risk is small per customer and it is spread across many people. Ten households owing Rs 3,000 each is a very different thing from one account owing Rs 30,000, even though the number is identical, and the difference is that ten small risks almost never fail at the same time.
Recovery is social. You know the family, the family knows the street, and most households will not walk away from a shop they use every day. That is a real form of security and it does not exist in any written form.
There is one more feature of household credit worth naming, because it is easy to mistake for loyalty. Households rarely leave over a limit. If you tell a family that their limit is Rs 2,500 and they wanted Rs 4,000, they are annoyed for a week and then they carry on buying, because moving their whole weekly shopping to another shop over Rs 1,500 is more trouble than it is worth to them. Business customers do leave over a limit, and they leave quickly, because their volume gives them options. That difference should tell you where to be firm and where to be flexible.
The weakness of household credit is that it is slow to grow and it produces small totals. A shop full of households is safe and unspectacular, which is a fine thing to be.
What a business khata actually is
A business account is a different animal wearing the same coat.
The amounts are larger and lumpier, because he buys stock rather than groceries. His ability to pay does not come from a wage. It comes from his own customers, which means his account is really an account with everybody who owes him money, and you cannot see any of them.
The five questions that tell you which kind of account this is
- 1Where does the money to pay you come from?A wage means household. Resale means business.
- 2Is there a fixed day when payment is possible?Households have one. Businesses have a range.
- 3Does the buying stop when money is short?Groceries never stop. Stock buying gets lumpy.
- 4How big is this account against a week of your sales?Bigger than a week is a limit set wrong.
- 5If it fails, does it fail alone or with others?Ten households rarely fail together. One business does.
The buying is elastic. When his business is good he buys more, when it is bad he buys less, and the danger point is the version in between: a business that is struggling often buys the same amount while paying more slowly, because stock is how it keeps trading. By the time the slowdown is visible on his shelf, it has already been visible on your page for weeks.
The risk concentrates. One business account can quickly equal twenty household accounts, and it fails as a single event rather than as a trend. That is the central fact of this whole subject, and it is the same lesson as choosing between one big buyer and twenty small customers.
But the upside is real and should not be dismissed. Business customers bring volume, predictable orders, and they are usually the reason a small shop grows into a supplying shop. The answer is rarely to refuse them. The answer is to treat their credit as a different product.
The customers who are both
The neat division above breaks on a group of customers who sit between the two, and they are more common than either pure type.
A woman who cooks food at home and sells it to a few offices is buying for a business, from a household, with no shop and no signboard. A man who buys cigarettes and phone credit from you and sells them from a stool outside the bus stop is running a business the size of a household. A family that buys building material a little at a time for a room they are adding is a household making one large, temporary, unusual purchase.
The test is not what the person looks like. It is where the money to pay you comes from, and there are only two answers. If it comes from a wage or a fixed income, treat it as a household. If it comes from selling on what he bought from you, treat it as a business, whatever the amounts are and however well you know him.
That second case is the one that catches shopkeepers. A neighbour you have known for years starts buying four times what he used to, and it feels like the same trusted household account growing. It is not. The moment his purchases are for resale, his ability to pay you depends on other people paying him, and your risk has quietly changed shape while the name on the page stayed the same.
When you notice the change, say something ordinary and early. "You are buying for the stall now, so let us keep this account separate and clear it every week." You have not accused anybody of anything. You have simply moved the account into the policy it belongs to.
The comparison, plainly
Here is the whole argument in one place, before the rules that follow from it.
Read the last two rows carefully, because they are the ones shopkeepers discover late. A household's trouble arrives slowly and is usually recoverable in small payments. A business's trouble arrives all at once, and by the time you hear about it, three other suppliers have already had the same conversation with him.
What one bad business account costs
The arithmetic is the part that settles most arguments about this, so do it for your own shop rather than believing anybody's rule.
Say one business account fails at Rs 40,000
Made-up figures, chosen to show the shape. Work it with your own daily profit; the answer is what makes a limit feel real.
The number that matters is not the loss. It is how many weeks of your ordinary profit the loss eats. A Rs 40,000 loss in a shop making Rs 3,500 a day of gross profit is around eleven days of everything the shop earns, and that is before rent and wages, which is why a single business failure feels so much heavier than its number.
Run the same sum for a household account and you will usually find it is a day or two. That difference, not any judgement about people, is the honest reason business credit needs different rules.
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Rules for giving credit to a business
If you decide to serve businesses on credit, and most growing shops do, these rules do the work.
Start smaller than he asks and raise it after you have watched him pay, three or four cycles at least. Everything you learn about a business account, you learn from its second and third month.
Set a shorter cycle than you would for a household. Weekly, or every ten days, and never the loose month-end arrangement, because a month is long enough for his own problem to become your problem before you notice.
Ask what his own customers pay him and when. It is a normal trade question, not an intrusion. A stall that takes cash daily is a completely different risk from a caterer who invoices offices and waits, and the second one is not worse, but it needs a longer clearing day and a firmer limit.
Watch the ratio, not the amount. A business account should be a size your shop can lose without changing anything. If one customer's balance is bigger than a week of your total sales, the limit is wrong, however good he is.
Take a guarantor for large business credit, and take it at the start, when the relationship is warm. Asking later reads as suspicion, and asking for a guarantor properly is normal practice in every trade.
Get his order on the phone or in writing rather than through a boy with a list, and keep the balance visible when the order is accepted rather than when the goods leave.
Rules for household credit
Households need fewer rules, but the ones they need are strict.
Match the clearing day to the payday, not to your convenience. A household that is paid on a fixed day and asked to clear four days earlier will fail every month, and the failure will look like bad character when it is simply bad timing.
Keep a per-customer limit that is about one week of their normal buying, and only raise it after a full cycle of clean paying. Sizing this properly is the whole of how much udhaar to give and to whom.
Watch the number of households, not just the amounts. Fifty small accounts are safe individually and can still tie up more cash than your shop can spare in total.
And keep the same rules for everybody in the same category. Household credit fails most often through exceptions made for people you like, which is a far more common cause of loss than any customer's dishonesty.
What most shops end up doing
Almost every shop that thinks about this properly arrives at the same answer, and it is neither of the two extremes.
They serve both, with two clearly different policies. Households get small limits, weekly or payday clearing, and easy approval. Businesses get a larger limit that is still small compared with the shop's own week, a shorter cycle, a guarantor above a certain size, and a limit that is raised in steps rather than in one decision.
They also keep one number in front of them: how much of the shop's total open credit sits with business accounts. If that share climbs above a third, the shop has quietly changed what it is, and it should be a decision rather than a drift.
What a two-policy shop actually keeps track of
- A separate limit rule for households and for businesses
- A clearing day per customer, matched to how he earns
- The share of total open credit sitting with businesses
- The largest single account, against a week of sales
- Which accounts have quietly turned into resale accounts
- A guarantor above whatever size you decided
The record is what makes a mixed policy possible at all, because two policies need two sets of eyes. You need to see, in a few seconds, what every business account owes, when each was last paid, and what the total looks like against your own week. In Wasoolo the balances, the dates and the limits sit together on the customer's own page, which is what turns a policy into something you actually follow rather than something you decided once.
And whichever way you lean, remember that the choice underneath all of this is the older one: whether your shop trades on credit at all, and how much of it, which is worked out properly in cash only or udhaar. Businesses simply make that question louder and faster.
Is it wrong to refuse credit to businesses completely?
Not at all, and some shops are better for it. If your cash is thin and your shelves turn fast, a cash-only policy for businesses and small credit for households is a perfectly sound way to run a shop.
A business customer buys ten times what a household does. Should he not get a bigger limit?
A bigger limit, yes, but not ten times bigger. The limit should follow what your shop can afford to lose, not what he can afford to buy. Volume is a reason to serve him well, not a reason to carry him.
He is a shopkeeper like me. Does that make him safer?
It makes him easier to understand and no safer. Another shopkeeper's cash depends on his own customers paying, and that is the one part of his business neither of you can see.
What early sign tells me a business account is going wrong?
Paying the same amount later each cycle, while ordering the same quantity. That pattern almost always appears before anybody says anything, and it is your cue to hold the limit and shorten the cycle.
Should I charge a business customer a different rate?
Give a wholesale rate for larger quantities if your margins allow it, on the quantity, not on the credit. Pricing credit differently is a road that ends badly for a small shop.
My biggest business account is now a third of everything I am owed. Is that dangerous?
It is a concentration you should reduce deliberately, without a quarrel. Hold his limit where it is, let the balance come down over a few cycles, and grow the household side while you do it.