So this business owes me money....

[Fluid Power]

I own an industrial distribution business. We have a customer that has always been a slow pay. In the end though, we always have gotten paid. We do about $250k a year with this customer and we make pretty good margins because of the fact that he is a slow pay. He is into me for about 60k. It looks less and less like he is going to catch up this past due amount. In the last 2-3 months we have been shipping orders COD. We are getting into his busy season and the COD orders are getting larger and larger. The problem is, when I mention the outstanding debt, he always tells me next time and of course it never comes. The question is, what do you guys think the course of action should be? Should we stop processing the current orders (at even better margin than before?) Suing is an option, my best friend is my attorney and the cost is zilch. Collecting a judgement is impossible though. Make him an offer to reduce the debt and pay 40K now and forget the 20k? (He probably doesn't have the cash.) I am stumped for sure. Any advice is welcome. Thankfully, we are big enough that, while it still stings really bad, it does not jeopardize the business. Thoughts?

Darren

[Flash68]

Man this really hits home for me and my business over the past couple years (construction staffing/recruiting).

Here's what I've landed on. If you are diversified enough in your client base and revenue stream and this customer represents a small total outstanding aging for you at any given time (including his peak season), then maybe you tolerate his slow pay. And it sounds like you have your money cost factored in and the margins are what's keeping him around. If you can "afford" to drop him and he falls into that 80/20 rule, then consider that.

Not knowing your annual revenue/profit numbers, if he is a small enough portion of your business, then dump him. Not worth the hassle.

If he is a large portion of your business (doesn't sound like it) then dump him. Not worth the risk and cash flow shock issues it can present.

If he's somewhere in between, that's the tough call for you to make. I have mechanics lien rights in my state of business so I have some added protection many vendors/suppliers do not. Not sure what protection you have as far as liens, etc.

[bdahlg68]

Ignoring the $60k past due, he is currently a great customer. As long as he's paying COD, keep doing business and reminding him. If you have the ability, raise prices a bit, do so. He clearly doesn't have a ready alternative because COD is a pain in the you know what. In fact, he could be more past due elsewhere.

I'm working in a troubled supply situation where the company was $7 million PAST DUE in paying it's vendors! That is past due, not what they owe and does not include long term debt! Unreal....

This guy could be doing a similar thing. So, if you're not likely to collect with lawyers involvement, don't bother. Just take his money other ways.

[Sieg]

In the flooring industry over my 35+ years I've watched a lot of distributors get strung out by customers they've had relationships for years in down economies. Mediocre business practices and management usually catch up with them, especially in this downturn. I've seen more distributors take the hit than save the customer, though you'll most likely hear of the failure vs. the save.

Tough call, emotion is typically not your friend in business decisions, the party in debt usually takes advantage of the situation. We've had more than one long-time builder customer take us for $40-80K in the past few years filing bankruptcy.

Is writing off the bad-debt from a solvent customer an option? Can you have a talk with the owner (preferably in person) and voice your concerns and make your decision based on his responses?

[4mm]

Raise your prices to him over the course of the year in order to offset what he owes and then wipe the slate clean. Of course, discuss it with him first.

He probably owes elsewhere, that's why he is still doing business with you.

[GregWeld]

Typically I always judged WILLINGNESS over ABILITY. Some of my largest customers were the slowest pay - they knew they could get away with it.... but I'd bend over backwards to work with someone that DID WHAT THEY SAID THEY'D DO.... i.e., if we worked out a payment arrangement and they stuck to their side of the agreement. That's the WILLINGNESS.

I think you have to assess whether this customer has ANY willingness to get caught up. Then take it from there.

[Sieg]

Well said Greg, it's a fine line though.

[Fluid Power]

Typically I always judged WILLINGNESS over ABILITY. Some of my largest customers were the slowest pay - they knew they could get away with it.... but I'd bend over backwards to work with someone that DID WHAT THEY SAID THEY'D DO.... i.e., if we worked out a payment arrangement and they stuck to their side of the agreement. That's the WILLINGNESS.

I think you have to assess whether this customer has ANY willingness to get caught up. Then take it from there.


I understand that Greg, but it is not like the guy is not buying from us currently. I have trouble separating the current business with the fact the guy owes me 60k! The personal side says screw him and sue his butt into the stone age just to make his life miserable. The business side says the same thing that bdahlg68 says. Ignore the 60 and he is a good customer. We are making about 15-18% more than my 'good' customers pay. I guess my initial thought is to raise prices more and make the money back over the long haul. I have a meeting today at his office, I will report back later today!

[Beegs]

I understand that Greg, but it is not like the guy is not buying from us currently. I have trouble separating the current business with the fact the guy owes me 60k! The personal side says screw him and sue his butt into the stone age just to make his life miserable. The business side says the same thing that bdahlg68 says. Ignore the 60 and he is a good customer. We are making about 15-18% more than my 'good' customers pay. I guess my initial thought is to raise prices more and make the money back over the long haul. I have a meeting today at his office, I will report back later today!

Any threats towards him via lwasuits, liens etc...will only make him bolt. Increase margins even more, make the money up EVERYWHERE you can with him, that along with a friendly reminder of the 60K and you will most likely keep his business when the economy upticks.

[GregWeld]

Well said Greg, it's a fine line though.



I agree -- it's a very fine line -- but if the customer has the willingness to make things right - regardless of how long that takes (payment plan of some type) you eventually end up with getting your money back - or some of your money back. Otherwise it's a ZERO. AND you lose a customer. If the customer has the willingness to get caught up - then it's a win win (except for the loss of interest / carrying costs on the past due).

I found I could "live with" a guy that was a good guy -- and tried to do the right thing.... over a guy that just stiffed me.

We all know that unsecured creditors wind up getting zip in lawsuits. So that's a zero.

[Fluid Power]

Thanks guys. I agree that we will take what we can get while we are getting it. That seems to make the most sense.

Darren

[GregWeld]

We could get a posse and ride around his house shooting our guns in the air....

[bdahlg68]

http://www.tigersweat.com/movies/arizona/ariz15.jpg

[Fluid Power]

We could get a posse and ride around his house shooting our guns in the air....


I had a buddy that was this monster of an Italian dude. Played football at University of Miami FL with Michael Irvin back in the day. He was in the 'construction' business. He never had any issues with collections! I wished he still lived here, I would have him go with me to visit my customer! He was super guy and did really nice work on high end homes. It was just funny how people would behave around him.

Darren

[Rybar]

Darren, why not stop shipping him new orders, or hold his current orders until he pays his debt? I know he's a good client, but eventually your going to get burned operating this way IMO.

Ryan

[Flash68]

Darren, why not stop shipping him new orders, or hold his current orders until he pays his debt? I know he's a good client, but eventually your going to get burned operating this way IMO.

Ryan

This is tricky. One worries if by stopping new orders, you are basically kissing your $60k goodbye or "altering" his willingness (as Greg wisely points out), or making it very difficult (read: expensive/legal) to collect.

But being the bank in addition to the supplier is a dangerous business... if your business is not being a real bank.

[Rybar]

This is tricky. One worries if by stopping new orders, you are basically kissing your $60k goodbye or "altering" his willingness (as Greg wisely points out), or making it very difficult (read: expensive/legal) to collect.

But being the bank in addition to the supplier is a dangerous business... if your business is not being a real bank.

I understand, my father used to own a large sofa factory and he did this all the time with certain slow payers. As soon as they were put on credit hold the payment came in and then the orders were released.

[Flash68]

I understand, my father used to own a large sofa factory and he did this all the time with certain slow payers. As soon as they were put on credit hold the payment came in and then the orders were released.

That's certainly one way to deal with things, but that's not the way I want to do business. I want to respect and enjoy the relationships we have. This goes back to account diversification and if you can afford to drop those types of adversarial clients, all the better.

I have a friend who used to be a large client 3 years ago until his business went bad. He still owes me well into 6 figures (the reason I had to sell my last Camaro) but he has the willingness to pay and I expect I will get paid back every dime but it may take a few years. He has already paid 1/3 of the debt and is clawing his way back. Due to his willingness to pay, he stayed in business when most would have filed BK.

Good discussion here.

[Sieg]

Due to his willingness to pay, he stayed in business when most would have filed BK.

Good discussion here.

Sadly those type of client/customers are a rare breed anymore, that desire used to be somewhat common in business. Now it's too easy to flip the switch and minimize personal damages.

Good for you allowing a person with desire to make it right. Both of you can sleep easier at night. :thumbsup:

[Fluid Power]

This is tricky. One worries if by stopping new orders, you are basically kissing your $60k goodbye or "altering" his willingness (as Greg wisely points out), or making it very difficult (read: expensive/legal) to collect.

But being the bank in addition to the supplier is a dangerous business... if your business is not being a real bank.

My feelings exactly. We can stop, but I think that kisses the money good bye for sure. At this point, there is no incentive for him to pay, other than my AP lady constantly beating on him. We have slowed things down when processing his order and we do not inventory anything lately. It takes several days to process the order where before it was available next day.

Let me make one thing clear. I would not piss on this guy if he was on fire. Unlike Flash and his customer, there is no love lost here. Part of me wants to turn it over to collections just for the headache factor it would bring on him. The flip side is he still owes me 60k and I want my money! I figured it would be a good topic for discussion, so keep it coming!

Darren

[Sieg]

Let me make one thing clear. I would not piss on this guy if he was on fire.
Well that changes the rules of engagement just a little. :rofl:

[Rybar]

That's certainly one way to deal with things, but that's not the way I want to do business. I want to respect and enjoy the relationships we have. This goes back to account diversification and if you can afford to drop those types of adversarial clients, all the better.

I have a friend who used to be a large client 3 years ago until his business went bad. He still owes me well into 6 figures (the reason I had to sell my last Camaro) but he has the willingness to pay and I expect I will get paid back every dime but it may take a few years. He has already paid 1/3 of the debt and is clawing his way back. Due to his willingness to pay, he stayed in business when most would have filed BK.

Good discussion here.

If your talking about respect, your client definitely does not respect you owing you 6 figures. Same with the OP Poster being owed $60k. I don't see anywhere where that is a form of respect. You guys are respecting them sending them product and not being paid for long terms. Respect in business is paying your damn bills and only ordering what you can afford to pay for. Again, this is My opinion.

[pokey64]

I've had some luck with discounts for lump sum payments on past due accounts. But you are right, if he don't have the 60k then he probably don't have 40… Every customer is different and you need a few options to pull from.

Since the COD business with this guy is "worthwhile" push for a payment plan that gets him paid up in a year. That'd be $5000 in addition to the COD orders each month. Basically you’re reducing his credit limit $5k/month. Grant him a reduced interest rate or some kind of discount for sticking with the plan. You'll have to keep pushing every month or he won’t stick with it. Of course he may start favoring a different vendor depending on what they let him get away with.

Make sure your people have no grey area with his credit limit/terms. I went to a pre-bankruptcy mediation one time for a customer who owed us $9000. The owner of another company was there and had just survived treatment for brain cancer. While he was away from the business his staff let the customer get into them for $250,000. :faint: And then we listened to the bank make it clear there wasn't going to be anything leftover for us unsecured vendors when they were done with him... :(

I agree with Greg that willingness is a factor. I’ll work with someone that makes an effort to send some dollar amount each month towards the old. We had one guy that always kept a $20k recurring balance. He paid just enough each month to cover his new purchases. It always pissed me off when I heard people say he owned all kinds of land and has a new piece of equipment or pickup on the yard every time they visited. Basically we were carrying his balance because he was a lazy bookkeeper. :rolleyes:


Good luck!

[NAPA 68]

In my line of business, I do not have an account that maintains a balance as large as what you are speaking of. I will share some experience none the less.
It seems as the customer is abusing and ignoring the past due balance and the privlige of an open account. What if this guy bounces a check for a COD purchase? What if he files bankruptcy? Still think you can afford to do business with him? IMO, you are really exposing yourself to a financial risk.

Is there any tax liens or judgments on him? (sales tax, estimated taxes, property taxes both personal and corporate) You may never be towards the front of the line to get paid. My policy.......................30 days past due=discussion. 45 days=COD. 90 days=no business at all. I lock the account. (these terms are typical in my line of work)

As some have said,you do not want to piss the guy off. But, where are you going by being a laid back nice guy? As long as you allow yourself to be a doormat, you will be a doormat.

[GregWeld]

When I used to have to deal with accounts I didn't like --- I used to tell myself "there's only one way to get even with him --- sell him something!"

I used to have a customer down in Portland, Oregon and he was a big deal in the biz - but not for me - yet he demanded "exclusivity". He wanted exclusivity because he wanted to retail at HUGE margins... and didn't want to be "shopped". My comment to him was -- look bonehead -- I'm going to do 3 mill in this area - if you want exclusivity - give me orders that will get me there... otherwise drop dead. Long and short -- I finally just opened other dealers around him -- gave them smokin' deals -- worked my butt off for them - coached them -- and just absolutely killed this guy.

At a trade show in Chicago he came into our showroom and was literally slathering he was so mad at me.... I (being the butthead I am) just laughed at him -- and reminded him of my "deal" with him... and that I too am running a business, and that my business is just as important to ME as his is to him.... I think that finally made him see the light. We agreed to let him have certain colors (not the hottest ones!) and or groups but not "the line".... and he ended up being one of my best customers and we had genuine respect for each other.

Dave's story about being owed by a guy that has the "willingness" is what I was talking about ---- a guy that is willing to pay -- can turn it around but you won't know that until HE SHOWS YOU HE IS... If not - bury his sorry butt.

[DOOM]

I agree -- it's a very fine line -- but if the customer has the willingness to make things right - regardless of how long that takes (payment plan of some type) you eventually end up with getting your money back - or some of your money back. Otherwise it's a ZERO. AND you lose a customer. If the customer has the willingness to get caught up - then it's a win win (except for the loss of interest / carrying costs on the past due).

I found I could "live with" a guy that was a good guy -- and tried to do the right thing.... over a guy that just stiffed me.

We all know that unsecured creditors wind up getting zip in lawsuits. So that's a zero.

Darren, Greg is spot on with what he said!

[Flash68]

If your talking about respect, your client definitely does not respect you owing you 6 figures. Same with the OP Poster being owed $60k. I don't see anywhere where that is a form of respect. You guys are respecting them sending them product and not being paid for long terms. Respect in business is paying your damn bills and only ordering what you can afford to pay for. Again, this is My opinion.

Sorry, but you don't have all the details, Ryan. And this isn't the time or place for me to provide all of them.

When I used to have to deal with accounts I didn't like --- I used to tell myself "there's only one way to get even with him --- sell him something!"

I used to have a customer down in Portland, Oregon and he was a big deal in the biz - but not for me - yet he demanded "exclusivity". He wanted exclusivity because he wanted to retail at HUGE margins... and didn't want to be "shopped". My comment to him was -- look bonehead -- I'm going to do 3 mill in this area - if you want exclusivity - give me orders that will get me there... otherwise drop dead. Long and short -- I finally just opened other dealers around him -- gave them smokin' deals -- worked my butt off for them - coached them -- and just absolutely killed this guy.

At a trade show in Chicago he came into our showroom and was literally slathering he was so mad at me.... I (being the butthead I am) just laughed at him -- and reminded him of my "deal" with him... and that I too am running a business, and that my business is just as important to ME as his is to him.... I think that finally made him see the light. We agreed to let him have certain colors (not the hottest ones!) and or groups but not "the line".... and he ended up being one of my best customers and we had genuine respect for each other.

Dave's story about being owed by a guy that has the "willingness" is what I was talking about ---- a guy that is willing to pay -- can turn it around but you won't know that until HE SHOWS YOU HE IS... If not - bury his sorry butt.

Greg makes another good point about business in general. Every man is out for himself, his family, his own success and for his team or employees. Managing cash flow is a survival tool and it can be used properly and effectively, and it can be used inappropriately (ethically and legally) and irresponsibly. (Sorry, that's too many adverbs in a row :lol:)

I believed 3 years ago and I still believe today that without his willingness, I would have filed against him and it would have pushed him over the edge to BK... and then I get nothing. Even if I get only what I have already received over the past 3 years and not a penny more, I still got a lot more than zero.

I've found that usually the people who are quick to tell you to file a lawsuit are the ones who have zero experience on either side of one.

[GregWeld]

I've found that usually the people who are quick to tell you to file a lawsuit are the ones who have zero experience on either side of one.


A truer word was never spoken!

About 3 years ago I lost half a million in a start up company due to idiots at the helm.... long and short of it is, I took everything I had to our attorneys -- and 50 grand later -- they thought I had a case to sue the board of directors.... a quarter million dollars later thru mandatory mediation -- I got a quarter million dollar settlement. So that all took at least a year and a half - the board had Directors and Officers insurance so you're really suing the insurance company and they have endless amounts to defend.... and had I not settled (took 9 hours in mediation) I probably would have spent another quarter million in trial. Since it wasn't fraudulent - there was no penalty - so the most I could get was my original investment back -- and MAYBE legal costs but probably not... so at some point it's "what's the point"? I wanted to have a judgement against the officers so that if they were to be asked to sit on another board - they'd have to disclose that they'd be sued and had a judgement. So I was willing to spend the money just to piss them off. But I'm mean like that! :unibrow:

So that "just sue them" talk is mostly just that -- big talk.

[71camaroz27]

I have done this in the past with guys that I have had to put on COD.
Tell the guy that you are going to raise his prices 10%, and keep track of his debt. Send him an email after each sale, and tell him how much he owes.

Hey "Bob" after this shipment, you only owe me $57,000.
Hey "Bob" after this order you only owe me $51,000.

Worked for me. He is now all paid up.:D

[Tony_SS]

I have done this in the past with guys that I have had to put on COD.
Tell the guy that you are going to raise his prices 10%, and keep track of his debt. Send him an email after each sale, and tell him how much he owes.

Hey "Bob" after this shipment, you only owe me $57,000.
Hey "Bob" after this order you only owe me $51,000.

Worked for me. He is now all paid up.:D

I think that's good advice.

[Chad-1stGen]

In your original post you said you were going to meet with the customer. Anything come out of it?

[Flash68]

In your original post you said you were going to meet with the customer. Anything come out of it?

Uh oh. An accountant is here. This spells trouble. :lol:

[Fluid Power]

I have done this in the past with guys that I have had to put on COD.
Tell the guy that you are going to raise his prices 10%, and keep track of his debt. Send him an email after each sale, and tell him how much he owes.

Hey "Bob" after this shipment, you only owe me $57,000.
Hey "Bob" after this order you only owe me $51,000.

Worked for me. He is now all paid up.:D

I like this.

Darren

[Fluid Power]

In your original post you said you were going to meet with the customer. Anything come out of it?


Not yet, Friday 5/11/12. I didn't make it out there early this week. Friday is the day I normally visit since I have my largest customer right down the street. (Coke) They have drama paying as well, but that is a whole other story. I have some COD stuff to drop off that he has been wanting since Tuesday of this week, so he is anxious to see me...Full report later...

Darren

[Ummgawa]

Darren,

Someone beat me to the punch. I'd figure out how far I am willing to write down his debt (my profit margin) and amortize the remainder over 24 months of CODs. When (and if) we were caught up, I'd never ever let him get behind again. COD him till the cows come home. If he questions you on it, drop him like a used rubber.

Good luck dude.

[Fluid Power]

Darren,

Someone beat me to the punch. I'd figure out how far I am willing to write down his debt (my profit margin) and amortize the remainder over 24 months of CODs. When (and if) we were caught up, I'd never ever let him get behind again. COD him till the cows come home. If he questions you on it, drop him like a used rubber.

Good luck dude.

Jim,

I am fortunate in the sense that it the money owed does not jeopardize the business. It was all my fault for letting it get this out of hand. 3 good size orders and boom here we are. His last paid on account ($5k) was on 1/29/12. Everything else was COD. The real issue is what has been stated before, we can sue or send to collections and get nothing, or we can try and work it out and get our money and continue to do business. The first option we loose the money period. At least by boosting the price and working out a plan of payment, I can still get paid and move product. It is a situation that has no clear cut answer and I was really interested in what people would do or say if they were in my shoes. There has been some good advice. The situation goes way beyond what is capable of being explained here. On some items they buy, It allows me to buy a much greater discount. For example, If he buys $1000 net from one vendor, my discount goes from 50% off to 65%. That extra 15% when I place inventory buys allows some nice margins on things that are normally sold for 15-17%. Again, this is what adds some complexity to the equation. We shut customers off all the time for slow or no pay and have sued a half dozen or more and have been successful at collecting judgements on all but 1 case. This is different because I know this guy. It is like a chess match to him. He drives the Porsche, has the Rolex and runs his mouth. It will catch up, we will get paid, we always have. I am enjoying the discussion however!

Darren