It’s Hector and I believe many of you are working at companies that are starting to reopen after a few months of being either partially or fully closed. I’ve been hearing from several credit and collection managers who have begun calling customers and seeing if you can collect on receivables that are 2-3 months past due. Unfortunately, you’re hitting a brick wall with the same answer, “We have no money because our own customers have yet to pay us!”
In normal times when we hear our customer give that type of excuse, we usually don’t accept it. We’re thinking that if they’re still paying their employees, the rent and utilities, and basically keeping the operation going, then with our power of gentle and professional persuasion, we believe we can eventually squeeze out the payment.
In addition, we often don’t want to get involved into the reasons why their customer hasn’t paid them yet, especially if it relates to their own set of collection challenges. By doing so, we might be giving our past due customer an excuse to further delay. From our perspective, we’ve fulfilled all of our contractual obligations and now as much as possible we would like to be paid pronto.
However, this time around, with the economy being shut down as drastically as it was, chances are pretty high that your customer is truly scraping the cash flow bottom of the barrel, and perhaps we have to rethink a new collection strategy. After all, extraordinary times require extraordinary measures.
During the last economic meltdown in 2008, when I was faced with the “We have no money because our customers have yet to pay us!” response to my collection efforts, on a case by case basis I decided to rope in my past due clients to me help collect from their outstanding customers.
Since the recent extreme economic circumstances have completely undermined the entire cash flow cycle, we probably have to think in terms of moving up the cash flow chain and seeing where we might be able to straighten out the kink in the hose. In other words, if company A can’t pay company B, then company B can’t pay company C, which is my client. So rather than me continuing to dun my client for the money, I might as well try to help them collect on their past due accounts so that it may loosen up a plugged drain.
I didn’t do this with all of my past due clients. In fact, I was very careful about who I chose to do this with. Those long-term clients who always paid on time and were considered very good clients, but were now faced with severe past due collection issues, were the ones to whom I turned my attention. To my pleasant surprise, they embraced the idea with open arms. Instead of calling and asking for the money only from their side, they now felt we were part of a team trying to resolve a very difficult problem we had in common.
Gradually we were able to help my clients to collect from their customers. As we monitored the payments coming in, we were able to apply a portion to my clients’ accounts to us, and soon enough they paid completely in full.
The upshot is that not only did we resolve our cash flow issue, we really took some of our client relationships to a whole new level of cooperation and profitability.
Hector the Collector is a credit and collection advice column by Nancy Seiverd President CMI Credit Mediators Inc. Your thoughts and comments (firstname.lastname@example.org) are most welcome!
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