This may be stating the obvious…but, as I have worked with many owners over the years, I have found that the attitude and the policies (or lack thereof) of the owner will often result in a portfolio of either good or bad customers. Slow pay customers will often find a home at a shop that will tolerate their inability or unwillingness to pay in a timely manner.
I believe in a firm policy that any accounts that go beyond 90 days should immediately be placed on COD. If your policy is 30 days net or 2 percent/10 net 30, then enforce it, and expect your staff to as well.
I often hear the argument that if I stick to a firm policy and cut off the credit, I will lose the account. This is the typical feeling of sales people that are not trained properly. I usually find that fear to simply be an excuse to avoid unpleasant collection calls or a lack of courage to enforce a policy.
Of course, there can be exceptions if one consciously approves longer terms for an otherwise good client and for good reason. If the client adheres to the terms agreed upon, that may be a good business decision—especially if you build in extra margin in the pricing. Commonsense must accompany any policy enforcement. If you get clients started out right, you can often avoid bad accounts receivable problems.
Follow these basics when landing a new client:
- Require the completion of a credit application and perform appropriate credit checks.
- Explain your terms of sale and that you enforce them just like the client should with its customers.
- Require a credit card or 50-percent deposit for any jobs done prior to approval of credit application.
- Clarify whether your terms are based on individual invoice or on a monthly statement.
- Determine if the invoice is to be left with the job or mailed to the appropriate manager/department.
- Follow up on the first order and ensure terms of sale were followed and payment received in a timely manner.
- Have clear responsibility designated for managing collecting A/R.
- Schedule a personal call from management to thank the client for its business and timely payment.
Sorry if this sounds like Business/Credit 101. But, these basics are violated every day by shops all across North America. Those that do not follow these fundamentals will find that the bad customers will drift their way over time.
It’s hard enough to make money in this business without trying to do it with “bad customers.” Create your own definition of what a “bad customer” is, but slow pay goes to the top of my list every time. I would welcome any contrary opinions in the Comment section below.