The Over 90 Days Customer

Every business that sells on credit has had, has, or will have them at some point “Those customers who think your purpose is to bankroll them”. Here I am primarily talking about the customers whose accounts receivable with you are routinely over 90 days. I recognize that in some industries that over 90 days is the norm, but for most businesses, once a customer’s account gets to 90 days, there is a high likelihood that what they owe will become a bad debt. I touched on this in an earlier blog, 3 Low Cost Sources of Cash – Part 2, but here I want to delve into this in more detail.

They’re Making Money on Your Back

Please don’t misunderstand me – customers do sometimes encounter situations where they will not be able to pay according to terms. That can be for a number of reasons, such as their own customers are paying slowly, their sales have been less than anticipated, they encounter unexpected expenses, or a host of other reasons. But, these are legitimate reasons and they are not my primarily concern in this discussion.

Who Trained Them Anyway?

Some customers use you like a finance company because you trained them that way. They may have seen your credit terms, but unless you reinforce these terms they often act as if they are exempt. So here are some ideas to get off this merry-go-round.

Start Them Right

With new customers there are several steps that help avoid past due accounts later:

  • Before doing business with a new customer, vet them properly to be sure they have the financial strength to fulfill their obligations
  • When you take on a new customer, make sure up front that they understand your credit terms and your expectations
  • Early in your relationship with them, make courtesy calls to be certain they pay in accordance with the terms. This can be coupled with a sales call to be certain of their satisfaction as well
  • If they start to get past due and show signs of becoming a problem account, be willing to put the account on hold until satisfactory payment is made

Existing Customer

If you have not been diligent about enforcing your credit terms and policies, you may already be dealing with the consequences. If so, here are a few suggestions:

  • See if there is a problem you are unaware of that you can resolve
  • Have a heart-to-heart talk with problem customers. Make it clear you want their business but cannot allow their account to remain so far past due
  • See if you can come to an agreement on a plan to bring their account current or at least to an acceptable point
  • Be willing to cut-off sales to them if they fail to make adequate progress toward bringing their account to a current status

In regards to then last item, I know many people cannot stand the thought of cutting off any customer. They protest, “But we need the sales!” Well, here is something to think about. A sale you cannot collect is worse than no sale at all, since you are not only out the amount of the sale, but also the cost of inventory sold, or time used, or both. In the end, if you cannot convert a sale to cash, it is ultimately worthless and may well put you out of business.

If you want to avoid the over 90 day customer you must be proactive with your customer relationships and accounts receivable management.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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