Up-front payment is required: People & Companies

Happy New Year! I hope that 2013 was a profitable year for your shop and that 2014 starts out on a positive note as well.

As I reflect on the ups and downs of the previous 12 months, the “classroom of reality” continues to educate me and my team. As a result, we created a list of goals for 2014. The first item on our list, and the one I’ll discuss here, is the objective of tightening our shop’s credit policy by doing something really crazy—working only with customers that pay invoices in a timely fashion. This is because slow-payers cause us to spend an inordinate amount of time and energy attempting to collect money for work we performed on time and to specification. Really, why the need to hound them? Frequent excuses include: “We didn’t get the invoice, so please resend it;” “Our bookkeeper has been sick;” and “It’s not in my system.” These and other delay tactics are tiring and distracting to deal with month after month.

When analyzing our 2013 sales, I noticed about 40 of our 200 customers had constant payment issues. About half of the 40-customer group were existing accounts we have attempted to work with and have chosen to tolerate, while the others were new accounts that we quoted and accepted work from in an effort to grow and diversify.

To ensure new accounts are profitable, we carefully review their requirements before saying yes. We’ve improved our screening process over the years and decline a sizable number of inquiries, but we still accept new customers if the jobs are within our capabilities and we believe the customers have future potential, or if they’re willing to pay upon completion.

Usually, the first order with a new customer is a fire drill, likely involving erroneous part drawings and a promise that getting them out of this bind will result in more business. Too frequently, the new work takes a long time to quote, disrupts the normal schedule and consumes valuable engineering, production and QC time, only to end up causing a hassle with the customer about paying their invoice later.