Dear Crabby,

I’m the accounting manager at a small wholesaler and like many small companies, we have just a handful of clients. Although there’s the general formula that 20% of your clients make up 80% of your sales, in our case we have one client that makes up 80% of our total business. Needless to say, we walk very gently with this client who has supported our company for many years and always try to accommodate their needs. This has included being flexible and accepting of their periodic payment term extension requests.

When we started with this client over 10 years ago they were on net 30 day terms, but gradually the terms have become longer and longer. In addition, the requested terms and actual payment date differ by about 30 days. Currently they are at 90 days terms in which payment arrives 120 days after billing, stretching our cash flow to the limit. As a result, we often find ourselves struggling to pay our bills and keep our important overseas suppliers from cutting us off. How can I change this situation and yet keep my customer happy for years to come?

Signed: Between a Rock and a Cash Flow Hard Place 

Dear Cash Flow,

Well, I can appreciate the tight pickle you’re in but let’s see if there’s a little wiggle room to get out from under this rock. Here are a few thoughts for your consideration.

1) Talk to your customer and let them know your situation. Since you’ve been doing business together for over 10 years, it sounds like you have a fairly good relationship. Like many long-term business relationships, I’m sure there have been issues that have arisen from time to time and have been worked out. This is just another one of them. It’s especially important that you pipe up and express yourselves because if your lack of cash flow brings your company to a halt, you won’t be able to supply this one large customer, nor any of your other customers. So in my view, you need to gently and honestly begin the conversation and get their feedback. I’m not sure if you’re able to reel in the payment terms to less than 90 days but as much as possible, I would try to encourage your customer not to exceed them going forward.

2) At the same time, I’m not sure if you have gone down this road yet but even if you have, it’s important for you to work with your bank or a factoring company to help you out with your cash flow. There are many kinds of factoring and working capital arrangements that could alleviate your cash flow crunch. In this economy, borrowing money is relatively cheap and there are probably quite a few factoring companies that would love to have your business. Some factors take over the invoicing and check processing and others let you continue to handle the entire billing process so that your customer never even knows the receivables are being factored.

If your bank is not able to assist you, one of the next steps for you is to familiarize yourself with the factoring industry through factoring associations. Here is a list of the major factoring organizations in the U.S. that can at least put you in the right direction.

Many factors that are members of these associations may specialize in your industry and their experience can be of great support in alleviating your cash flow crunch.

I hope the above gets you started and by all means, please let me know what happens

Crabby

Dear Crabby is a credit and collection advice column by Nancy Seiverd, President, CMI Credit Mediators Inc. Your thoughts (nseiverd@cmiweb.com) on what to advise are most welcome, and with your permission, we’ll reprint your comments in the next issue of our newsletter.

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