or 37 years clients have
claimed new sales would
solve all of their problems; not
exactly. Financing must be in
place to finance the inventory
buildup and account receivable
generated by the new sales.
In today’s volatile and changing economy
increased sales alone are not the recipe for
success. We see increasing bankruptcies,
layoffs, corporate losses, tight liquidity, and
capital deterioration presenting unprecedented challenges for business owners.
net 30-day terms, a greater discount
for quicker payment.
Accordingly, I have formulated the
following Ten Client Commandments
to help manage your business in this
V.;Look at Aging and Payment Trends
Study A/R aging weekly; look for negative trends and clients paying slower
than they have historically. Call to get
them back on 30-day terms. Do credit
checks and cut limits if they don’t
change payment patterns.
I. Solidify Financing Relationships
Banks are pushing marginal credits out
of the door, small factors and asset-based lenders are being squeezed. It
is paramount to have strong relationships with your lender. Two years ago
a client may have switched financing
sources to save one quarter point, not
anymore. Have a financing source that
understands your business, is comfortable with the risk, will not “cut and
run” when the going gets tough, and
who is financially strong. Communication fosters strong relationships, so
meet with your lender quarterly.
VI. Look at Level of Disputes and Offsets
When companies have financial problems, payments slow with disputes
and offset claims.
VII.;Change Orders – Get Written
Promises and handshakes are not sufficient. Written authorization is important, especially with change orders. Be
courteous, but firm, when demanding
VIII.;Review Internal A/R Department and
Formalize procedures. If terms are net
30, do you begin making calls at 40 days?
IX.;Be Aggressive on Collections
II. Review Customer Base (i.e. debtor base)
Review your customer base to determine potential problem clients. Do you
have industry exposure in a sick industry? If so, how can you protect yourself?
Are some of the risks insurable? Can
you shorten payment terms? Should
you put some clients on COD?
When do you write collection letters
and/or take legal action? The longer
you wait, the more uncollectable the
A/R becomes. Remember the squeaky
wheel gets the grease.
III.;Look at Concentration
X. Cut Expenses and Control Them Yourself
I’ve never seen a business that could
not cut 20% of its expenses without
affecting sales. Everyone simply works
smarter and harder.
Do you have customer concentration,
i.e. more than 20% of sales to one
customer? If yes, what happens if that
customer goes out of business, stops
paying or buying from you?
IV.;Look at Credit Terms
Some of these Commandments may
sound hard and fast, but this is survival
mode. Remember, at the end of the day it
is not just about sales, it is about financing
your business and collecting your A/R. TSL
What are your credit terms? Have
clients asked for 60- or 90-day terms?
In today’s market you do not want
to extend credit terms. Those asking
admit they have financial problems.
It is better to lose the sale than never
collect the principal. As an incentive,
give clients a discount for accepting
Allen E. Frederic is president/CEO of Gulf
Coast Business Credit, headquartered
in New Orleans. He is a member of the
Commercial Finance Association Executive Committee.