FRAM SYSTEMS ^blog

With the economy slowing down you may encounter customers or clients slowing down their payment on credit sales too. This is only natural. As they are pinched and trying to stretch every dollar, they will test all their credit sources to discover which ones they can take advantage of, which will be stringent and which will be willing to work out an equitable solution.

Of course you would like to paid first. Your business is probably feeling the crunch as much as your clients. So what can you do to ensure that you will get paid without alienating your clients? Even better, how can you work with your troubled clients that can make them raving fans and a referrers of new, well paying business?

Before we get to that I want you to read a real letter sent to a the collections department at a large Brazilian department store chain - Casas Bahia for those that care to know. The translation is mine and the original author is a woman. Her approach to debt service is quite unique. I think you will enjoy it.

Dear sirs,
This is the eighth collection letter I received from you. I know that I am behind in my payments. It so happens that I have bills with other stores and all are waiting for me to pay them. Never the less, my monthly earnings only allow me to make two payments at the end of each month. The remainder must wait to the following month.

They are aware that I am not unjust, the type of person that prefers to pay this or that company to the detriment of all the others, NO!

Every month when I receive my bills I write the name of each of my creditors on small pieces of paper that I roll up and put in a little box. Then I turn my head and pick out two slips; they are the “lucky” ones that will receive my bit of riches. All others, please have patience! You will remain for the following month. I affirm to you gentlemen, with all certainty, that your firm is in my little box every month. If I don’t pay you this month it is because you have been unlucky.

Finally, be advised: if you continue to with this penchant of sending menacing and insolent letters every month, like the last one I received, I will be obliged to EXCLUDE the name of your company from my monthly lottery…

Yes indeed, your company may be the unlucky one. So what can you do to increase the cash coming in from your clients that are strapped for cash? A little advance work goes a long way.

I am assuming that before you extend credit you are doing your homework by checking the credit worthiness of your client and that you have established clear guidelines on what risks your business is willing to take before advancing goods and services. I will also assume that work credit policy has been clearly explained and understood by your clients you will extend credit to. You do have a contract?

Aside from the obvious sometimes events cause unforeseen trouble. Like the woman in the letter perhaps there is more month than money for your clients. What can you do to be assured of payment?

The first most important step is communication. For debtors, let your creditors that you are in an uncomfortable situation. We never can know what the future will bring. It could be that your client’s had a large order cancelled or their business has dropped considerably and they must make a choice between rent and servicing their debt to you. Never assume that those that you do business with are just ‘out to screw’ you. What does that say about your judgement in doing business with them in the first place? Instead talk.

One good strategy that I espouse is to start you collection process in a nice way well before there is ever a problem. Its starts with billing. After your original invoice goes out, wait a few days for you client to receive it. Then have someone in your service department - if you have one - call to make sure everything is alright with the order. Find out now if there is any dissatisfaction with your product or service. Be thorough and talk to everyone you can at your client to make sure there is nothing wrong in the client’s mind about what you delivered. Write down or record these conversations. If there are any problems address them immediately. Even the smallest detail has been used as a reason to put your bill back in the little box for the next ‘drawing.’

If the customer is satisfied have your AR department - again, if you have one - call ask the customer and ask if they have received and understand the invoice. If you offer any discounts for early payment, have them emphasize that during the call. Most importantly have them ask “when can we expect your payment?” Again write down or record the call.

So what we have done is taken away the excuse of dissatisfaction as a reason to withhold payment. we have also gotten a verbal commitment of when we can expect payment. These actions go a long way to putting your bill at the top of the stack.

So what if the client says they have a financial problem and will not be able to pay your bill. Whatever you do, don’t become indignant or threatening. Show compassion and concern for the client’s unfortunate situation. Tell them you know they would never withhold payment unless their situation was desperate. Ask what you can do to help them through their hard financial times. Remember, if you’re talking to a large client with a receivables and billing department you may have to go to the CFO or VP of finance but because they are beholden to you it can be easier to get hold of them and they are the only person you can deal with anyway. For a small business go directly to the owner.

Tell them of you concern about the situation and offer assistance. Write down every concession they would like you to make. Just listen and make no offers during that conversation. wne they are done thank them for being open and forthcoming and and tell them you will get back to them. You are now in an excellent position since you know what they want. Here’s where you can get creative.Thanink about what your comany may if getting your cash upfront is not a possiblilty. Just to give you an idea of what is possible here are some things I have seen work.

A debtor company gave their creditors the right to collect directly from their customers. The deal was structured so that if the debtor was able to collect the entire debt to creditor they would get to keep the entire amount in excess of their original debt.

A debtor company arranged financing for part of their original debt by factoring their receivables at 20% discount to cash. The remaining original debt was financed over 5 years at a reasonable rate by the creditor and 5% of the original debt was forgiven.

A trucking company allowed a creditor, a fleet leasing company, the right to resell their transportation services and collect the revenue.

One company heavily in debt to a long time supplier traded their debt for a 15% stake in the business and an appointment of the controller as the CFO of the debtor company. In the long run this helped both firms as the new CFO helped turn the business around, a process that over four years, and earned the a whopping 1200% return on the original debt.

Look, anything is possible if communication is open and honest. I know your situation may not be like the ones I’ve cited but always think about what you want and need that is not cash. Would you like a great testimonial? How about having your debtors as a new sales force? Why not excuse part of their debt for each new client they bring you that makes a purchase? Can you company use or resell any of the debtors inventory? Does your debtor have large advertising contracts that are holding them back? May your company can use that advertising instead. Always look carefully at you debtors assets and think how they can help your company. You may surprised at what you find.

Be open.
Be compassionate.
Be creative.

Find a common ground where there are benefits to you and your client. Remember the worst thing you can do is to drive you debtor in bankruptcy. In that situation no one wins expect the lawyers.

Of course this is just the tip of the proverbial iceberg. If your company is beginning to experience collections problems, call me today so we can work on strategies that keep your company thriving even in these difficult times.

Phil
888 823 2620