To float or not to float

I have several friends in the commercial landscaping business. They consistently tell me how their customers never pay on time, sometimes stringing them out for months. This doesn’t make sense to me, so I asked why they tolerate it. They replied, “That’s just how some customers are.”

At my shop and others I’ve been in contact with, cash flow and timely payment have become issues that require greater scrutiny. If that’s the case at your shop, dealing with them effectively will be a test of your management skills.

There’s no question that machine shops shouldn’t be expected to finance customers’ operations. But eventually, this is a hand you’ll be dealt, fair or not. It’s a matter of your risk tolerance and whether you’ve got the financial wherewithal to handle it.

Most well-run shops can deal with slow cash flow to some degree, but it comes down to a couple of choices: build a cash reserve and use those funds to pay your suppliers on time and float a customer until they pay in 45 to 90 days, or reduce your customer list to only those who’ll pay on time.

Building a “float fund” is one mechanism to pay suppliers on time regardless of whether your customer pays or not. I’ve met a few shop owners who serve industries that typically pay in 60 to 90 days, and it’s just a part of doing business with customers in those industries.

On the other hand, some shops are very cash-flow dependent and can’t afford to float well-funded companies. Waiting 60-plus days for payment is distracting and creates financial stress. Slow-paying accounts force shops like ours to be selective about customers and the payment terms offered. There’s something to be said for focusing solely on accounts that match a shop’s capabilities and pay on time. Who wouldn’t like that scenario?