It’s so nice to have customers you feel are good as gold. They’re the ones who’ve been with you for years — maybe even generations. They order on a regular basis, in large amounts, and always pay on time. They’ve contributed to your company’s long-term success and when they call and request something, you rope in all of your resources to fulfill their every need.
But then out of the blue, the first signs that things are not quite right begin to appear. Payments that you could count on like clockwork become one or two weeks past due. Then they become one month late, with payments at times coming in by piecemeal. Finally, when you’re looking over your aging report and see in the over 60-day column a long line of outstanding invoices, you exclaim, “How did this happen!”
In the meantime, strangely, even with all the past dues, orders continue to come in as usual.
After calming down and talking with everyone on your team to figure out what to do, you decide to call your customer and have an honest talk (like Mister Ed always did with Wilbur) about the past due situation. That’s when you hear for the first time that they’re having some severe financial difficulties and that in order to keep their operation going, they need your product. In other words, if you don’t ship, they can’t keep their operation going, which in turn prevents them from shipping and billing out to their customers, and ultimately not being able to pay you. Conversely, if you keep shipping, the amount they may be able to pay you still won’t keep pace with the growing past due balance. It’s a downward spiral.
Does this situation sound familiar? This scenario happens to many businesses, even ones that are supposed to be very sophisticated with their credit risk management controls. The reality however is that any company could make a poor decision or find themselves in circumstances out of their control that could seriously impact its financial stability.
But rather than fretting on how a glorious relationship went bad, it’s imperative to talk openly and honestly with the customer and see if there are things that can be done together to shore up the situation. Bearing in mind that if they need you to keep their operation going, you’ll have leverage to request certain information and obtain some accommodations. Here are some ideas for your consideration:
- Talk face to face with the person or people in charge. If you can’t travel to your customer’s location, at least get everyone together over Skype. As much as possible, have the president, CEO, CFO and others of the executive management in the meeting so that everyone who is part of the problem, and has the authority to make a decision, are present. With all the players in the room, decisions are more likely to be made at the time of the meeting.
- Request your customer’s most recent financial statements that will hopefully give you the most accurate financial picture. Understanding how much debt they are grappling with, along with what their current and long-term assets are, will give you a reasonable indication of their short and long-term viability.
- Discuss with your customer how they are trying to correct the mistakes that resulted in their current financial difficulties. Sometimes your customer may be dealing with the fallout from one of their own large customers suddenly going bankrupt, which is why they now find themselves in a severe bind. By hearing the problems, you might just see opportunities for helpful solutions.
- Map out a payment plan for past due invoices and try to get current and future orders paid in advance or on receipt of the product. Obtain guarantees that include credit cards and automatic bank withdrawal authorizations.
- Keep communicating and if necessary, talk every day. I once had a client whose customer fell into a financial quagmire, but they called the accounting manager almost daily and discussed how many payments were received and how many bills needed to be paid. Although it was an unusual situation, this kind of honest communication not only deepened the level of trust and desire to keep working together, but it also facilitated orders being shipped out, keeping their customer’s operation afloat, and payments forthcoming.
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This article has been edited by Steven Gan.