Slow Paying Customer Policy

[David Haynes]

Terry,

It sounds like you have always gotten paid by this customer ­ but always
late, correct? Financing your customer¹s business obviously costs you money,
thus you¹re in essence discounting your product to them. Just as obviously,
you¹d like to keep this customer because they are a good source of revenue.

Your dilemma is that you don¹t have a good sense of where the value is ­ to
you or to your customer. Perhaps part of your value to your customer is
their ability to run what is essentially a cash business ­ they get paid,
you get paid. You should ask them. If they need you to finance their
business, they should pay for that (it has value to them), assuming that you
are willing to assume that risk. If they¹re just taking advantage of your
lax collection policies, you should change them. Call them and explain the
new policies and why they¹re in place.

What is their value to you? Obviously it¹s not cash flow. What is the trade
off for lower margin work? Volume?

If you lose this customer it¹s either because they found someone else to
subsidize their business or they found someone who would help solve their
cash flow problem. (What would happen to your customer if they couldn¹t get
soundboards from you?)

What¹s the risk of asking for a 50% deposit and balance before delivery?
What¹s the risk of continuing to do low margin work with no assurance of
getting paid? If this company eventually stiffs you for several thousand
dollars, what is the real cost to you? What is your ³lost opportunity² cost?

Perhaps you should ask for a $5,000 deposit (whatever number makes sense).
You¹ll produce against that deposit until it drops below the cost of a
single soundboard, at which point you will not accept another order. Let
them place money in your ³bank² to draw on. That allows you to continue to
do short turnarounds without waiting for checks to clear. (Assuming it has
value to you to be in the banking business.)

Talk to your customer, explain your position, know what you¹ll accept, and
be prepared to say ³sorry². Your good clients ultimately subsidize your poor
ones if you don¹t change your pricing structure or collection policy.

David


On 6/4/07 7:06 PM, "Farrell" <mfarrel2 at tampabay.rr.com> wrote:

> I'm looking for some opinions on setting a policy for a slow paying customer.
> A company I have been building soundboards for several years now has
> consistently been a slow payer. The last invoice they paid up was for $3,500 -
> it was finally paid this February - they got their soundboards in May of last
> year - eight full months to pay. And it was like pulling teeth. I currently
> have an unpaid invoice for them - I have sent three copies of the invoice -
> the last one with a very personal note in red ink - emailed and phoned them.
> They owe me $1,500 - they got their soundboard panels last October.
>  
> My policy has always been to take a soundboard order, build and ship it, and
> then bill. Everyone I deal with pays promptly (thank you guys!) - except this
> particular crew.
>  
> I love building soundboards for anyone. But I gotta get paid! I received
> another order from this same company for more soundboards. I definitely need
> to have all previous invoices paid up before I start on their new order - I
> know that. I know many folks who do this type of work will ask for 50% up
> front and the balance upon completion.
>  
> I have always been very timely with constructing and shipping their orders -
> even on short notice. I'm thinking that because of their demonstrated
> reluctance to pay their bills, it would be reasonable and really the only
> sensible policy to ask for payment in full with shipment of soundboards within
> two weeks of receipt of payment in full.
>  
> I hate to have to play hardball - and I know I might even loose this customer
> because of it - but if I don't get paid, what good where they anyway? I have
> little doubt that I have wasted enough time over the past few years to have
> built a soundboard for someone else in the time I have spent tracking down
> these slow payers.
>  
> I'm a one-man-show. I have no administrative help. I'm reasonably efficient
> building soundboards and related things. I'm very inefficient at
> administrative tasks. I probably spend ten times the amount of time doing
> administrative things that someone more efficient at those tasks could be. I
> just don't have time to spend being a bill collector.
>  
> Any opinions on a fair, efficient and productive policy for this client?
>  
> Terry Farrell
> Farrell Piano
>  
> www.farrellpiano.com <http://www.farrellpiano.com>
> terry at farrellpiano.com
> 


-------------- next part --------------
An HTML attachment was scrubbed...
URL: https://www.moypiano.com/ptg/pianotech.php/attachments/20070604/23ca5c7f/attachment.html